<PAGE> 1
As filed pursuant to Rule 424)b)(2)
under the Securities Act of 1933
Registration No. 33-95832
INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT IS SUBJECT TO
COMPLETION PURSUANT TO RULE 424 UNDER THE SECURITIES ACT OF 1933. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN DECLARED
EFFECTIVE BY THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 415
UNDER THE SECURITIES ACT OF 1933. A FINAL PROSPECTUS SUPPLEMENT AND
PROSPECTUS WILL BE DELIVERED TO PURCHASERS OF THESE SECURITIES. THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO
SELL OR THE SOLICITATION OF AN OFFER TO BUY OR SHALL THERE BE ANY SALE OF
THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE
WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS SUPPLEMENT DATED OCTOBER 25, 1996
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED SEPTEMBER 1, 1995)
THE PRICE REIT, INC.
$55,000,000
% SENIOR NOTES DUE 2006
------------------------
The Price REIT, Inc., a Maryland corporation (the "Company"), will issue
% Senior Notes Due 2006 (the "Notes") offered hereby (the "Offering"), in an
aggregate principal amount of $55,000,000. Interest on the Notes is payable
semi-annually in arrears on each of May 1 and November 1, commencing May 1,
1997. The Notes are not subject to any mandatory sinking fund. See "Description
of the Notes." The Notes will mature on November , 2006, and are redeemable at
any time after November , 2001, at the option of the Company, in whole or in
part, at a redemption price equal to the sum of (i) the principal of the Notes
being redeemed plus accrued interest to the redemption date and (ii) the
Make-Whole Amount (as hereinafter defined), if any. See "Description of the
Notes -- Maturity" and "Description of the Notes -- Optional Redemption."
The Notes will be represented by a single fully-registered Note in
book-entry form (the "Global Note") registered in the name of the nominee of The
Depository Trust Company ("DTC"). Currently, there is no market for the Notes.
In addition, the Company does not intend to list the Notes on any securities
exchange. Beneficial interests in the Global Note will be shown on, and
transfers thereof will be effected only through, records maintained by DTC (with
respect to beneficial interests of beneficial owners). Owners of beneficial
interests in the Global Note will be entitled to physical delivery of Notes in
certificated form equal in principal amount to their respective beneficial
interests only under the limited circumstances described under "Description of
the Notes -- Book Entry System." Settlement for the Notes will be made in
immediately available funds. The Notes will trade in DTC's Same-Day Funds
Settlement System until maturity or until the Notes are issued in certificated
form, and secondary market trading activity in the Notes will therefore settle
in immediately available funds. All payments of principal and interest in
respect of the Notes will be made by the Company in immediately available funds.
See "Description of the Notes -- Same-Day Settlement and Payment."
Following the application of the net proceeds of the Offering, the Notes
will be effectively subordinated to certain indebtedness, which is secured by
certain of the Company's properties. See "Business and Properties -- Recent
Developments -- 1996 Acquisitions and Property Development" and "Business and
Properties -- Indebtedness."
SEE "RISK FACTORS" BEGINNING ON PAGE S-16 FOR A DISCUSSION OF CERTAIN
FACTORS RELATING TO AN INVESTMENT IN THE NOTES.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
PRICE TO PROCEEDS TO
PUBLIC(1) UNDERWRITING COMPANY(1)(3)
DISCOUNT(2)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note............................ 100% % %
- ---------------------------------------------------------------------------------------------------------
Total............................... $55,000,000 $ $
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(1) Plus accrued interest, if any, from November , 1996.
(2) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting estimated expenses of $175,000 payable by the Company.
------------------------
The Notes are offered by the several Underwriters subject to prior sale,
when, as and if delivered to and accepted by them, subject to approval of
certain legal matters by counsel for the Underwriters and certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the Global Note will be made in New York, New York on or about
November , 1996 against payment therefor in immediately available funds.
------------------------
MERRILL LYNCH & CO. J.P. MORGAN & CO.
------------------------
The date of this Prospectus Supplement is , 1996.
<PAGE> 2
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY EFFECT TRANSACTIONS WHICH
STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES OFFERED HEREBY AT A LEVEL
ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING,
IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
------------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Supplement Summary........................................................ S- 3
Business and Properties.............................................................. S- 7
Use of Proceeds...................................................................... S-12
Capitalization....................................................................... S-13
Selected Financial Data.............................................................. S-14
Risk Factors......................................................................... S-16
Description of the Notes............................................................. S-18
Underwriting......................................................................... S-25
Legal Matters........................................................................ S-26
Experts.............................................................................. S-26
PROSPECTUS
Available Information................................................................ 2
Incorporation of Certain Documents by Reference...................................... 2
The Company.......................................................................... 3
Tax Status of the Company............................................................ 3
Use of Proceeds...................................................................... 3
Earnings of Fixed Charges Ratios..................................................... 3
Description of Debt Securities....................................................... 4
Description of Stock................................................................. 14
Description of Warrants.............................................................. 19
Federal Income Tax Considerations.................................................... 20
Plan of Distribution................................................................. 27
Experts.............................................................................. 28
Legal Matters........................................................................ 28
</TABLE>
S-2
<PAGE> 3
PROSPECTUS SUPPLEMENT SUMMARY
The following summary is qualified in its entirety by the detailed
information appearing elsewhere in this Prospectus Supplement or the
accompanying Prospectus or incorporated herein or therein by reference.
Capitalized terms used in this Prospectus Supplement Summary have the meanings
set forth elsewhere in the Prospectus Supplement or the accompanying Prospectus.
THE COMPANY
The Price REIT, Inc. (the "Company") is a self-administered and
self-managed equity real estate investment trust (a "REIT") which is focused on
the acquisition, development, management and redevelopment of destination retail
shopping center properties known as "power centers." The Company currently owns
or has interests in 22 properties, consisting of 19 power centers, one stand
alone retail warehouse and two undeveloped land parcels (the "Properties")
located in seven states containing a total of 4.9 million square feet of gross
leasable space with approximately 304 tenants. The overall occupancy rate of the
Properties was approximately 98.0% at June 30, 1996.
Power centers are typically open-air centers ranging in size from 200,000
to 700,000 square feet of gross leasable area, and are usually comprised of one
or more national retail anchor tenants, often in a warehouse format. Anchor
retail tenants typically occupy between 60% and 90% of the total square footage
in a power center. The tenant mix in a power center is designed to draw
consumers from up to a 15-mile radius, creating a shopping "destination." The
majority of the Company's anchor tenants are retail warehouses, which are
consumer-oriented facilities with at least 25,000 to 100,000 square feet of
gross leasable area offering a variety of products for business use, personal
use or resale. The retail warehouse format of merchandise display, direct
manufacturer purchasing, low mark-ups and rapid inventory turnover is designed
to provide substantial consumer savings compared to other sources of similar
merchandise.
Each of the Company's power centers is anchored by one or more national
retail tenants such as Home Depot, Price Club, HomeBase, The Sports Authority,
Burlington Coat Factory, Target, Builder's Square, Toys 'R' Us or Sears
Homelife. The Company typically seeks to structure tenant leases as "triple net"
leases, under the terms of which the tenant is responsible for its pro rata
share of costs and expenses associated with the ongoing operation of the
property, including but not limited to real property taxes and assessments,
repairs and maintenance, and insurance. The anchor tenants generally have
primary lease terms of ten to twenty years and smaller tenants typically have
primary lease terms of five to ten years. The Company's leases generally provide
for contractual rent increases over the life of the lease based on a fixed
amount or consumer price indices, and, in certain cases, percentage rent,
calculated as a percentage of a tenant's gross sales above a predetermined
threshold.
The Company's strategy is to continue to acquire, develop, own and manage
power centers anchored by national retail tenants who enter into long term
triple net leases. The Company's business objective is to increase its funds
from operations through the acquisition and development of additional
properties, contractual rent increases and percentage rent, reletting of
existing space at higher rents and expansion or remodeling of existing
properties.
The Company intends to pursue opportunities for acquisitions with expansion
potential and to develop additional power centers and stand-alone retail
warehouses. The Company's development capability has been enhanced through its
ownership interest in K&F Development Company (the "Development Company"), a
property development company with approximately 11 employees and, through its
predecessors, over 20 years of experience in developing shopping centers and
other properties. The Development Company primarily conducts the Company's
development activities, including site planning, construction management and
leasing. The Company owns 100% of the non-voting preferred stock of the
Development Company.
The Company operates in a manner to qualify as a REIT under Sections
856-860 of the Internal Revenue Code of 1986, as amended (the "Code"). Under
those sections of the Code, the Company must distribute at least 95% of its
taxable income and meet certain other asset and income tests. As a result,
pretax income of the Company flows through to its stockholders who are taxed on
the income on their individual income tax
S-3
<PAGE> 4
returns eliminating the double taxation (at the corporate and stockholder
levels) that generally results from investment in a corporation.
The Company's principal executive office is located at 7979 Ivanhoe Avenue,
Suite 524, La Jolla, California 92037, and its telephone number is (619)
551-2320. The Company's administrative office is located at 145 South Fairfax
Avenue, Fourth Floor, Los Angeles, California 90036, and its telephone number is
(213) 937-8200.
S-4
<PAGE> 5
THE OFFERING
All capitalized terms used herein and not defined herein shall have the
meanings provided in "Description of the Notes."
SECURITIES OFFERED......... $55,000,000 aggregate principal amount of %
Senior Notes due 2006 (the "Notes").
MATURITY................... November , 2006.
OPTIONAL REDEMPTION........ The Notes are redeemable at any time after November
, 2001 at the option of the Company, in whole
or in part, at a redemption price equal to the
sum of (i) the principal amount of the Notes
being redeemed plus accrued interest to the
redemption date and (ii) the Make-Whole Amount,
if any. See "Description of Notes -- Optional
Redemption."
INTEREST PAYMENT DATES..... Semi-annually, on May 1 and November 1, commencing
May 1, 1997.
RANKING.................... The Notes will be senior unsecured obligations of
the Company and will rank equally with the
Company's other unsecured and unsubordinated
indebtedness, including, without limitation,
$100,000,000 aggregate principal amount of the
Company's 7.25% Senior Notes Due 2000 issued in
November 1995 (the "1995 Notes"), but will be
effectively subordinated to $2.75 million of
indebtedness that is secured by a mortgage on one
of the Company's Properties, after giving effect
to the application of the net proceeds of this
Offering. See "Business and Properties -- Recent
Developments -- 1996 Acquisitions and Property
Developments". The Notes will be recourse to all
of the assets of the Company.
USE OF PROCEEDS............ The net proceeds to the Company from this Offering
will be used to repay indebtedness outstanding
under the Company's $75 million unsecured line of
credit (the "Line of Credit"), and the remaining
net proceeds will be used for general corporate
purposes including, without limitation, the
acquisition and development of additional
properties and the repayment of other
indebtedness.
LIMITATIONS ON DEBT........ The Company will not incur any Debt if, after
giving effect thereto, the aggregate principal
amount of all outstanding Debt of the Company is
greater than 50% of the sum of (i) the Company's
Total Assets at the end of the Company's fiscal
quarter ended immediately prior to the incurrence
of such Debt and (ii) the aggregate purchase
price of real estate assets acquired after such
immediately preceding fiscal quarter, including
any such assets acquired in connection with the
incurrence of additional Debt. As of June 30,
1996, the Company's Total Assets (which, as
defined, includes accumulated depreciation) were
approximately $417 million.
LIMITATIONS ON SECURED
DEBT....................... The Company will not incur any Debt secured by any
mortgage or other lien upon any of its
properties, or otherwise grant any such mortgage
or other lien, if, after giving effect thereto,
the aggregate principal amount of all outstanding
Debt of the Company which is secured by any
mortgage or other lien on property is greater
than 30% of the sum of (i) the Company's Total
Assets at the end of the Company's fiscal quarter
ended immediately prior to the incurrence of such
Debt and (ii) the aggregate purchase price of
real estate assets acquired after
S-5
<PAGE> 6
such immediately preceding fiscal quarter,
including any such assets acquired in connection
with the incurrence of additional Debt.
INTEREST EXPENSE
COVERAGE................... The Company will not incur any Debt if, after
giving effect to the incurrence of such Debt, the
Company's ratio of Total Cash Flow to Total
Interest Expense, at the end of each fiscal year
of the Company, will have been less than 2:1 as
calculated on a pro forma basis after giving
effect to certain assumptions.
MAINTENANCE OF TOTAL
UNENCUMBERED ASSETS.... The Company will maintain Total Unencumbered Assets
of not less than 200% of the aggregate
outstanding principal amount of all unsecured
Debt of the Company, including the Notes offered
hereby. As of June 30, 1996, this percentage was
approximately 259%.
RESTRICTIONS ON
DISTRIBUTIONS.............. The Company will not make any payment of dividends
if the aggregate amount of dividends paid in the
twelve months preceding the dividend payment date
(including the dividends paid on such date) will
exceed 95% of its Funds From Operations in the
period of twelve consecutive months ended on the
last day of the last month ended prior to such
payment date; provided, however, that the
foregoing restriction shall not apply to any
payment of dividends or other action which is
necessary to maintain the Company's status as a
REIT for Federal income tax purposes.
For a more complete description of the terms and definitions used in the
foregoing limitations, see "Description of the Notes -- Additional Covenants of
the Company."
S-6
<PAGE> 7
BUSINESS AND PROPERTIES
The Company currently owns or has interests in 22 properties, consisting of
19 power centers, one stand-alone retail warehouse and two vacant land parcels
for future development. The Properties have approximately 4.9 million square
feet of gross leasable area with approximately 304 tenants. Thirteen of the
Properties have a Home Depot or Price Club warehouse or both located on them.
Home Depot and Price/Costco, Inc. account for 18.8% and 11.5%, respectively, of
annualized minimum base rental income as of June 30, 1996. The power centers are
leased to tenants under noncancelable leases with remaining terms ranging up to
25 years. The leases are typically triple net leases. Most of the leases also
provide for future rent increases by automatic fixed rate increases or increases
based on consumer price indices. Additionally, certain of the leases contain
provisions for percentage participation in retail sales of the tenant in excess
of a minimum amount. At June 30, 1996, Price/Costco, Inc. accounted for greater
than 10% of the total annualized minimum base rental income in seven of the
eight properties in which it is a tenant, and Home Depot accounted for greater
than 10% of the total annualized minimum base rental income in eight of the
properties in which it is a tenant.
[MAP: The Price REIT Portfolio]
[The Prospectus Supplement contains a map of the United States with
the following states enlarged: California, Arizona, Texas, New York,
Connecticut, Maryland, Virginia and Illinois. The map indicates the
location of (i) each of the Company's power centers listed in the
table below, (ii) the Company's stand alone warehouse listed in the
table below, (iii) the Company's development in progress in Commack,
NY, (iv) the Company's vacant land for development listed in the
table below and (v) the Company's five offices (two in California,
and one in each of Arizona, Illinois and New York).]
The power centers were approximately 98.0% leased at June 30, 1996. The
Company's shopping centers generally contain major national and regional tenants
which feature quality consumer items with value pricing that generally perform
well in most economic environments. Approximately 49% of the Company's
annualized minimum base rental income as of June 30, 1996 was derived from rents
paid by tenants with investment-grade credit ratings as determined by Standard &
Poor's Corporation or Moody's Investors Service, Inc.
S-7
<PAGE> 8
The following schedule lists the real estate investment portfolio of the
Company as of June 30, 1996:
<TABLE>
<CAPTION>
GROSS
LEASABLE OUTSTANDING
LAND AREA ANNUALIZED MORTGAGES
YEAR AREA (SQ. FT.) NO. OF PERCENT BASE RENT(2) PAYABLE SELECTED MAJOR
LOCATION COMPLETED(1) (ACRES) (THOUSANDS) TENANTS LEASED (THOUSANDS) (THOUSANDS) TENANTS
- -------------------- ------------ ------- ----------- ------- ------- ------------ ----------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
POWER CENTERS:
Alhambra, CA 1988 18.4 201 10 100.0% $ 2,130 None Price Club,
Levitz
Carmichael, CA 1994 18.5 215 13 98.0% 2,225 None Home Depot, The
Sports Authority,
Longs Drugs
Cerritos, CA 1987 16.3 172 10 95.9% 1,648 None Home Depot, AMC
Theaters, L.A.
Fitness
Chula Vista, CA 1988 31.3 357 23 94.8% 2,448 None Price Club, Home
Base, Levitz
Copiague, NY 1990 24.6 246 9 93.8% 2,749 None Home Depot, Jack
LaLanne
(Bally's), Office
Max
Corona, CA 1989 54.4 487 48 98.2% 5,075 None Price Club, Home
Depot, Levitz,
Ross Dress for
Less, Bally's
Holiday Spa,
Office Max
Dallas, TX (3) 1992 15.0 210 8 100.0% 1,444 None Sears Homelife,
Best Buy, General
Cinema, PetsMart
Fairfax, VA 1993 37.0 323 6 100.0% 3,703 None Price Club, Home
Depot, The Sports
Authority,
Computer City
Glendale, AZ 1989 40.5 340 22 100.0% 3,111 None Price Club,
HomeBase, Levitz
Glendale, AZ 1995 6.0 42 5 100.0% 336 None Sears Homelife,
(Talavi)(4) Michaels
Houston, TX 1993 40.0 426 17 100.0% 2,704 None Sears Homelife,
Oshmans Super
Sport, Best Buy,
Bed, Bath &
Beyond, Stein
Mart, Builder's
Square, Sony
Theaters
La Mirada, CA 1993 31.2 279 45 94.6% 3,178 None Toys 'R' Us,
Sav-On Drugs,
L.A. Fitness,
Krikorian
Theatres, U.S.
Post Office
North Haven, CT 1988 31.7 332 19 100.0% 2,784 None Price Club, Home
Depot, Xpect
Drug, T.J. Maxx
North Phoenix, AZ 1996 17.0 180 7 100.0% 1,170 $ 2,750 Burlington Coat
Factory, Computer
City, Staples,
Petco
Oxnard, CA 1990 14.4 172 4 100.0% 1,073 None Target, Ralphs
(Food-4-Less),
Family Fitness
Phoenix, AZ 1989 26.6 335 11 96.9% 2,110 None Price Club,
HomeBase,
PetsMart
Phoenix, AZ 1973 6.7 95 14 93.0% 389 None Home Depot, Stool
(Hayden Plaza & Dinette,
North)(4) Autozone
Tempe, AZ(4) 1994 21.1 192 25 93.5% 1,991 (5) Home Base, The
Sports Authority,
L.A. Fitness,
PetsMart, Staples
</TABLE>
S-8
<PAGE> 9
<TABLE>
<CAPTION>
GROSS
LEASABLE OUTSTANDING
LAND AREA ANNUALIZED MORTGAGES
YEAR AREA (SQ. FT.) NO. OF PERCENT BASE RENT(2) PAYABLE SELECTED MAJOR
LOCATION COMPLETED(1) (ACRES) (THOUSANDS) TENANTS LEASED (THOUSANDS) (THOUSANDS) TENANTS
- -------------------- ------------ ------- ----------- ------- ------- ------------ ----------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
White Marsh, MD 1991 25.3 210 7 99.0% 1,328 None Price Club, The
Sports Authority,
Pep Boys,
PetsMart
STAND ALONE RETAIL WAREHOUSE:
Santa Ana, CA 1995 12.0 134 1 100.0% 1,765 None Home Depot
VACANT LAND FOR DEVELOPMENT:
Goodyear, AZ(4) n/a 20.0 n/a n/a n/a n/a None
Houston, TX(6) n/a 9.7 n/a n/a n/a n/a None
----- ----- --- ----- ------- ------
TOTAL/AVERAGE 517.7 4,948 304 98.0% $ 43,361 $ 2,750(5)
===== ===== === ===== ======= ======
</TABLE>
- ---------------
(1) Represents the year in which the Property was completed or the year in which
the most recent significant expansion or renovation was completed, which in
certain instances precedes the date the Property was acquired by the
Company.
(2) Total annualized contract base rents excluding (i) percentage rents, (ii)
additional rent payable by tenants such as common area maintenance, real
estate taxes and other expense reimbursements and (iii) future contractual
rent escalations or cost of living increases.
(3) The Dallas, Texas property was acquired by the Company in July 1996.
(4) Reflects the Company's 50% ownership interest in the above properties,
except for the number of tenants (if applicable) which is shown at 100%.
(5) The first phase of the Tempe property secures a loan of $10.5 million, of
which the Company has a 50% partnership share ($5.25 million).
(6) This vacant land is adjacent and contiguous to the Company's center located
in Houston, Texas.
Each of the properties listed above, except North Phoenix (Arizona),
Phoenix (Arizona-Hayden Plaza North), Dallas (Texas), Houston (Texas), La Mirada
(California), Oxnard (California), Glendale-Talavi (Arizona) and Goodyear
(Arizona), was acquired from The Price Company, the predecessor to Price/Costco,
Inc.
LEASE EXPIRATION SCHEDULE
The following table shows tenant lease expirations for leases in place as
of June 30, 1996 at the Company's power centers and stand-alone retail
warehouse, beginning with the remainder of 1996 and assuming that none of the
tenants exercises any renewal options.
<TABLE>
<CAPTION>
GROSS LEASED AREA ANNUALIZED BASE RENTAL INCOME(2)
TOTAL NUMBER OF ------------------------ -----------------------------------
NUMBER OF ANCHOR APPROXIMATE PERCENT PERCENT AVERAGE
LEASES TENANT LEASES GLA OF OF PER
LEASES EXPIRING IN: EXPIRING EXPIRING(1) SQ. FT. TOTAL AMOUNT TOTAL SQ. FT.
- -------------------------- --------- ------------- ------------ ------- ----------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1996(3)................... 21 0 38,399 0.79 % $ 586,399 1.35 % 15.27
1997...................... 26 1 69,095 1.43 971,520 2.24 14.06
1998...................... 33 2 160,045 3.30 1,471,296 3.39 9.19
1999...................... 29 1 117,223 2.42 1,451,962 3.35 12.39
2000...................... 28 3 152,617 3.15 1,726,339 3.98 11.31
2001...................... 29 4 179,853 3.71 2,116,341 4.88 11.77
2002...................... 10 0 39,125 0.81 573,930 1.32 14.67
2003...................... 16 6 464,943 9.59 3,816,474 8.80 8.21
2004...................... 9 1 87,896 1.81 1,058,132 2.44 12.04
2005...................... 17 5 171,895 3.55 1,725,085 3.98 10.04
2006...................... 8 4 517,121 10.67 3,045,776 7.03 5.89
Thereafter................ 78 43 2,848,482 58.77 24,817,348 57.24 8.71
--- -- --------- ------ ----------- ------ ------
Total/Average............. 304 70 4,846,694(4 ) 100.00 % $43,360,602 100.00 % $ 8.95
=== == ========= ====== =========== ====== ======
</TABLE>
- ---------------
(1) Anchor tenant leases represent leases for space with a minimum of 20,000
square feet.
(2) Information is presented as of June 30, 1996.
S-9
<PAGE> 10
(3) Information for 1996 relates to leases expiring in the remaining six
calendar months after June 30, 1996.
(4) Excludes vacant space as of June 30, 1996, which totaled approximately
101,000 square feet.
BUSINESS AND OPERATING STRATEGY
The Company's strategy is to acquire, develop, own and manage power centers
anchored by one or more national retail tenants such as Home Depot, Price Club,
HomeBase, The Sports Authority, Burlington Coat Factory, Target, Builder's
Square, Toys 'R' Us or Sears Homelife. These tenants typically enter into
long-term (10 to 20 years) triple net leases which provide for contractual rent
increases and/or percentage rents. In addition, the Company seeks, through
intensive management of its Properties, to continually improve the mix and
quality of smaller tenants which generally enter into shorter term (5 to 10
years) triple net leases that also provide for contractual rent increases and,
in certain cases, percentage rents. The Company's business objective is to
continue to increase its funds from operations through the acquisition and
development of additional properties, contractual rent increases and percentage
rents, reletting of existing space at higher rents and expansion or remodeling
of existing Properties. The Company generally intends to hold its Properties for
long-term investment. However, the Company may dispose of a property if it deems
such disposition to be advantageous.
The Company intends to pursue opportunities for acquisitions with expansion
potential and to develop additional power centers and stand-alone retail
warehouses. The Company believes that under current economic and financial
conditions, excellent opportunities continue to exist for buyers and developers
of shopping centers who have access to capital. This belief is based upon
several factors, including the shortage of financing for shopping center
development from traditional sources and economic factors that continue to force
many developers and lending institutions to liquidate their real estate
holdings. There can be no assurance, however, that acquisition or development
opportunities consistent with the Company's strategy will be available to the
Company, or, if available, will be available on terms favorable to the Company.
The Company's development capability has been enhanced through its
ownership interest in K&F Development Company (the "Development Company"). The
Development Company has approximately 11 employees and through its predecessors,
has developed neighborhood, community and regional shopping centers, power
centers, and mid- and high-rise office buildings for over 20 years. The
Development Company primarily conducts the Company's development activities,
including site planning, construction management and leasing. The Company owns
100% of the non-voting preferred stock of the Development Company.
The Company's geographic focus has been on metropolitan areas in the
southwestern and eastern United States. As the Company seeks acquisition and
development opportunities, it will focus on metropolitan areas throughout the
country.
RECENT DEVELOPMENTS
1996 ACQUISITIONS AND PROPERTY DEVELOPMENT
- Pending Oklahoma Acquisition. The Company has entered into a contract to
purchase Centennial Plaza in Oklahoma City, Oklahoma. Centennial Plaza
contains approximately 234,000 rentable square feet and is anchored by
Home Depot, Best Buy and Home Place and is approximately 93% leased. The
purchase price is approximately $16.7 million, of which approximately
$11.9 million is evidenced by two non-recourse loans (subject to customary
exceptions) secured by the property. The Company is assuming the loans,
rather than paying the purchase price in cash, because the terms of the
loans prohibit prepayment. The loans bear interest at 9.0% and 9.25% per
annum, respectively, and will mature on June 1, 2013 and December 1, 2014,
respectively. Because there are a number of conditions to the Company's
obligation to consummate the purchase, including, without limitation,
approval of title and execution of satisfactory loan assumption documents,
no assurance can be given that the acquisition will occur.
- Commencement of New York Development. On July 15, 1996, the Company
announced the commencement of construction of a 270,000 square foot retail
center in Long Island, New York. The development, estimated to cost
approximately $23 million, will be pursuant to a joint venture of the
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<PAGE> 11
Company and King Kullen Grocery Company, a Long Island grocery chain.
Based on executed leases, the center will be anchored by King Kullen and
national tenants such as Borders Books & Music, HomePlace and Babies 'R'
Us (Toys 'R' Us). In addition, Target plans to open a 125,000 square foot
store on a contiguous parcel of land. Although the Company currently
anticipates developing this power center, there can be no assurance that
the development of this power center will be completed. See "Risk
Factors -- General Real Estate Investment Risks -- Risks of Development
Activities."
- Texas Acquisition. On July 9, 1996, the Company announced the
acquisition of the Towneast Centre and Plaza located in the Mesquite area
of Dallas, Texas, due east of the Dallas business district. The property
includes tenants such as Best Buy, Sears Homelife, PetsMart, Consolidated
Stores and General Cinema, as well as a Home Depot store (which is
separately owned by Home Depot) and is 100% leased. The center consists of
210,000 square feet of leasable area located on 15 acres and was purchased
for approximately $12.7 million.
- Arizona Acquisition. On May 6, 1996, the Company announced the
acquisition of the Hayden Plaza North shopping center located in Phoenix,
Arizona, in partnership with Kimco Realty Corporation ("Kimco"), for a
total purchase price of approximately $3.5 million. The shopping center
contains approximately 191,000 square feet of gross leaseable area on
approximately 13.4 acres of land, is anchored by a 103,000 square foot
Home Depot store and has approximately 14 tenants. The center was
purchased by Hayden Plaza North Associates, a newly formed partnership
between the Company and an affiliate of Kimco in which the Company holds a
50% interest and the Kimco affiliate holds the remaining 50% interest.
OTHER RECENT DEVELOPMENTS
- Credit Rating Upgrade. On October 18, 1996, Moody's Investors Service,
Inc. upgraded its rating of the Company's senior debt to "Baa3" from
"Ba1." According to Moody's, the rating action primarily reflects the
improvements that the Company has made to its property base, and
geographic and tenant concentration. The Company's senior debt is also
rated "BBB-" by Standard & Poor's Corporation and "BBB" by Fitch Investors
Service, L.P.
- Interest Rate Reduction. On October 23, 1996, the Company announced that
the interest rate on its Line of Credit had been reduced by 15 basis
points to 125 basis points above the LIBOR rate.
- Common Stock Offering. In September 1996, the Company issued and sold
690,000 shares of Common Stock (the "Equity Offering") at a price to the
public of $32.125 per share pursuant to a shelf registration statement
initially filed on August 15, 1995 for up to $175 million of debt
securities, preferred stock, common stock and warrants. The Company used
the net proceeds of approximately $21 million for repayment of
indebtedness under the Company's Line of Credit and for general corporate
purposes.
- Simplified Common Stock Structure. At the Company's Annual Meeting held
on May 23, 1996, stockholders approved an amendment to the Company's
charter to (i) provide that all outstanding shares of Series A Common
Stock be changed into shares of Common Stock; (ii) eliminate the provision
which entitles holders of Common Stock to receive an annualized quarterly
per share dividend equal to 105% of the annualized quarterly per share
dividend on the Series A Common Stock; (iii) change the name of its
"Series A Common Stock" to "Common Stock" and (iv) change the name of what
was formerly referred to as "Common Shares" to "Common Stock." There were
approximately 38,266 outstanding shares of Series A Common Stock, which
were converted on a one-for-one basis into shares of Common Stock. The
Company believes that these changes will reduce market confusion and
eliminate administrative expenses associated with maintaining two separate
series of common stock. The Company remains authorized to issue 27,000,000
shares, including 2,000,000 shares of Preferred Stock, $.01 par value per
share; however, as a result of these changes, only one class of common
stock, designated as "Common Stock" and consisting of 25,000,000 shares,
is currently authorized for issuance.
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<PAGE> 12
INDEBTEDNESS
As of June 30, 1996, the Company's total aggregate indebtedness was $158.9
million, consisting of $57.0 million of outstanding indebtedness under its Line
of Credit, $99.2 million of outstanding indebtedness with respect to its
outstanding 1995 Notes and $2.75 million of an outstanding note payable that is
secured by a mortgage on one of its Properties. The $2.75 million secured note
payable is due on December 22, 1996 and the Company anticipates repaying such
note in full at that time. As of June 30, 1996, on a pro forma basis, after
giving effect to the application of the net proceeds from this offering (the
"Offering") as described in "Use of Proceeds" and the application of the
proceeds of the Equity Offering the Company's total aggregate indebtedness would
have been approximately $156.9 million. See "Capitalization." Such amount does
not include approximately $11.9 million of additional mortgage indebtedness that
the Company will assume if the proposed Oklahoma property acquisition is
completed. See "Business and Properties -- Recent Developments -- 1996
Acquisitions and Property Development."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Notes offered hereby,
after payment of expenses related to the Offering and underwriting discounts and
commissions, are estimated to be approximately $54.4 million. The Company will
use such net proceeds to repay indebtedness then outstanding under the Company's
Line of Credit. The remaining net proceeds will be used for general corporate
purposes, including, without limitation, the acquisition and development of
additional properties and the repayment of other indebtedness. Pending such
uses, which the Company anticipates will occur concurrently with or shortly
following the consummation of the Offering, the Company may invest such net
proceeds in short-term income-producing investments such as investment grade
commercial paper, government securities or money market funds that invest in
government securities.
After the repayment of indebtedness under the Company's Line of Credit with
the net proceeds of the Offering, the Company may borrow under the Line of
Credit to fund its future acquisition and development activities.
As of October 15, 1996, the weighted average interest rate on the
indebtedness expected to be repaid with the net proceeds of the Offering was a
variable rate of approximately 6.8%, and the maturity date of such indebtedness
was October 25, 1997.
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<PAGE> 13
CAPITALIZATION
The following table sets forth, as of June 30, 1996 (i) the actual
capitalization of the Company, (ii) the pro forma capitalization of the Company
giving effect to (a) the issuance and sale of 690,000 shares of Common Stock in
connection with the Equity Offering of September 1996, (b) the application of
the net proceeds therefrom and (c) the drawing down an additional $13 million
from the Company's Line of Credit in connection with the completion of the
acquisition of the Dallas property in July 1996 and (iii) the pro forma
capitalization of the Company as adjusted to reflect the issuance and sale of
the Notes.
<TABLE>
<CAPTION>
JUNE 30, 1996
----------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
DEBT:
Unsecured Line of Credit........................... $ 57,000 $ 52,000 $ --
Senior Notes payable due 2000...................... 99,158 99,158 99,158
Senior Notes payable due 2006...................... -- -- 55,000
Secured note payable............................... 2,750 2,750 2,750
STOCKHOLDERS' EQUITY:
Preferred Stock, $0.01 par value per share:
2,000,000 shares authorized, no shares issued or
outstanding..................................... -- -- --
Common Stock, $0.01 par value per share: 25,000,000
shares authorized, 8,361,873 and 9,051,873
shares issued and outstanding(1)................ 84 91 91
Additional paid-in capital......................... 238,173 259,166 259,166
Accumulated deficit................................ (18,698) (18,698) (18,698)
-------- -------- --------
Total stockholders' equity...................... 219,559 240,559 240,559
-------- -------- --------
Total capitalization....................... $378,467 $394,467 $397,467
======== ======== ========
</TABLE>
- ---------------
(1) Does not include approximately 705,500 shares of Common Stock reserved for
issuance pursuant to stock option agreements that the Company has entered
into with certain of its officers and directors. See "Description of
Stock -- General" in the accompanying Prospectus.
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<PAGE> 14
SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the Company for
the period from December 3, 1991 (inception) to December 31, 1991, and the four
years in the period ended December 31, 1995, derived from the audited financial
statements of the Company. The financial data for the six month periods ended
June 30, 1995 and 1996 are derived from the Company's unaudited interim
financial statements. The unaudited interim financial statements include all
adjustments, consisting only of normal recurring adjustments, which the Company
considers necessary for a fair presentation of the data. Results of operations
for interim periods are not necessarily indicative of results to be expected for
the full fiscal year. The following information should be read in conjunction
with the financial statements and notes thereto and Management's Discussion and
Analysis of Financial Condition and Result of Operations, included in the
Company's 1995 Annual Report on Form 10-K and its Quarterly Reports on Form 10-Q
for the quarters ended March 31, 1996 and June 30, 1996, all of which are
incorporated herein by reference.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
---------------- -------------------------------------------
1996 1995 1995 1994 1993 1992 1991(1)
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING STATEMENT DATA:
Total revenues................................................ $26,315 $20,919 $43,523 $39,925 $27,794 $18,815 $ 1,140
Interest expense.............................................. 5,961 3,205 6,939 4,085 4,257 3,203 --
Net income.................................................... 8,193 8,099 16,386 16,904 9,128 4,118 438
Dividends..................................................... 11,680 10,853 22,038 20,859 12,128 6,610 549
Per Share:
Net Income.................................................. 0.98 0.98 1.98 2.07 1.84 1.41 0.15
Dividends(2)................................................ 1.40 1.32 2.67 2.56 2.38 2.26 0.19
Average shares outstanding.................................... 8,334 8,231 8,259 8,165 4,957 2,928 2,928
OTHER DATA:
Funds From Operations(3)...................................... 14,303 13,024 26,582 26,271 15,529 8,077 647
Ratio of earnings to fixed charges(4)......................... 2.33x 3.33x 3.17x 4.73x 3.07x 2.28x --
Total rentable square footage of
Properties at end of period(5).............................. 4,948 3,703 4,628 3,662 3,317 2,196 1,427
Number of Properties at end of period (5)..................... 22 14 19 14 12 8 5
Occupancy rate at end of period............................... 98% 98% 98% 98% 98% 98% 98%
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ----------------------------------------------------
1996 1995 1994 1993 1992 1991(1)
-------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Rental property, net..................................... $348,081 $351,585 $287,259 $284,721 $186,479 $113,984
Total assets............................................. 381,061 382,478 312,419 292,195 190,010 115,048
Total debt............................................... 158,908 157,832 86,750 65,000 76,980 --
Minority interest........................................ -- -- -- -- 42,628 43,344
Total stockholders' equity............................... 219,559 221,238 224,600 226,261 68,731 71,223
</TABLE>
- ---------------
(1) The Company was incorporated in 1991 and consummated an initial public
offering, acquired income-producing properties and commenced operations on
December 3, 1991. Therefore, 1991 results represent the period from December
3, 1991 through December 31, 1991.
(2) Prior to August 1993, the Company's outstanding stock consisted entirely of
Series A Common Stock. The per share dividends for 1991, 1992 and 1993
therefore represent dividends paid to holders of Series A Common Stock. In
1993, the Company effected a public offering of shares of Series B Common
Stock (which are now designated simply as "Common Stock"). The per share
dividends for 1994, 1995 and the six-month periods ended June 30, 1995 and
June 30, 1996 represent dividends paid to holders of Common Stock. Under the
Company's charter prior to its recent amendment, holders of the Common Stock
were entitled to receive an annualized quarterly per share dividend equal to
105% of the annualized quarterly per share dividend paid to the holders of
Series A Common Stock. The per share
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<PAGE> 15
dividends paid for 1995 and the six months ended June 30, 1995 to the
holders of Series A Common Stock were $2.54 and $1.26, respectively. The per
share dividends paid for the six months ended June 30, 1996 to the holders
of its Series A Common Stock (which was converted into Common Stock in May
1996) was $1.37. At the Company's 1996 Annual Meeting the stockholders
approved an amendment to the Company's charter to simplify the common stock
structure. See "Business and Properties-- Recent Developments -- Other
Recent Developments -- Simplified Common Stock Structure" above.
(3) Most industry analysts and equity REITs, including the Company, consider
Funds From Operations ("FFO") an appropriate supplemental measure of
operating performance of an equity REIT. In general, FFO adjusts net income
for non-cash charges such as depreciation, certain amortization expenses and
most non-recurring gains or losses. However, FFO does not represent cash
generated from operating activities in accordance with generally accepted
account principles ("GAAP") and should not be considered an alternative to
net income as an indication of the results of the Company's performance or
to cash flows as a measure of liquidity. In May 1995, the National
Association of Real Estate Investment Trusts ("NAREIT") modified the
definition of FFO, among other things, to eliminate amortization of deferred
financing costs and depreciation of non-real estate items added back to net
income when computing FFO. The Company implemented the new method of
calculating FFO under the NAREIT provisions on the NAREIT-suggested adoption
date of January 1, 1996. The Company has recalculated and presented FFO for
the periods in the table above, including periods prior to 1996, under the
new definition.
(4) The ratio of earnings to fixed charges is computed by dividing earnings by
fixed charges. For this purpose, earnings consist of pre-tax income from
continuing operations plus fixed charges. Fixed charges consist of interest
expense and the amortization of debt issuance costs.
(5) The Dallas, Texas property which was acquired by the Company in July 1996 is
included in the total rentable square footage of Properties and number of
Properties for the six months ended June 30, 1996.
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<PAGE> 16
RISK FACTORS
This Prospectus Supplement and the accompanying Prospectus, including the
documents incorporated by reference in the accompanying Prospectus, contain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act"). Also, documents subsequently
filed by the Company with the Securities and Exchange Commission and
incorporated herein by reference will contain forward-looking statements. Actual
results could differ materially from those projected in the forward-looking
statements as a result of the risk factors set forth below and the matters set
forth or incorporated in this Prospectus Supplement and the accompanying
Prospectus generally. The Company cautions the reader, however, that this list
of factors may not be exhaustive, particularly with respect to future filings.
Prospective investors should carefully consider, among other factors, the
matters described below before purchasing Notes in this Offering.
GENERAL REAL ESTATE INVESTMENT RISKS
Economic Performance and Value of Centers Depending on Many Factors. Real
property investments are subject to varying degrees of risk. The economic
performance and values of real estate can be affected by many factors, including
changes in the national, regional and local economic climate, local conditions
such as an oversupply of space or a reduction in demand for real estate in the
area, the attractiveness of the properties to tenants, competition from other
available space, the ability of the owner to provide adequate maintenance and
insurance and increased operating costs.
Dependence on Rental Income from Real Property. Since substantially all of
the Company's income is derived from rental income from real property, the
Company's income and funds for distribution would be adversely affected if a
significant number of the Company's tenants were unable to meet their
obligations to the Company or if the Company were unable to lease a significant
amount of space in its properties on economically favorable lease terms. There
can be no assurance that any tenant whose lease expires in the future will renew
such lease or that the Company will be able to re-lease space on economically
advantageous terms.
Environmental Risks. Under various federal, state and local laws,
ordinances and regulations, the Company may be considered an owner or operator
of real property or may have arranged for the disposal or treatment of hazardous
or toxic substances and, therefore, may become liable for the costs of removal
or remediation of certain hazardous substances released on or in its property or
disposed of by it, as well as certain other potential costs which could relate
to hazardous or toxic substances (including governmental fines and injuries to
persons and property). Such liability may be imposed whether or not the Company
knew of, or was responsible for, the presence of such hazardous or toxic
substances.
Risks of Development Activities. The Company intends to continue to
actively pursue shopping center development projects, including the expansion of
existing centers. Such projects generally require the expenditure of capital as
well as various forms of government and other approvals, the receipt of which
cannot be assured. Consequently, there can be no assurance that any such
projects will be completed or that such projects will prove to be profitable.
Competition for Acquisition of Real Estate. There is competition in the
acquisition of properties and some of the Company's competitors are larger and
have greater financial resources than the Company. This competition may result
in a higher cost for properties the Company wishes to acquire.
RELIANCE ON MAJOR TENANTS
As of June 30, 1996, the Company's real estate portfolio generated total
annualized minimum base rental income of approximately $43.4 million. The
Company's three largest tenants, Home Depot, Price/Costco, Inc. and HomeBase,
accounted for approximately 18.8%, 11.5% and 6.6%, respectively, of annualized
minimum base rental income as of June 30, 1996, and the Company's seven largest
tenants accounted for approximately 48.9% of annualized minimum base rental
income. The loss of any one of the Company's principal tenants would have a
material adverse impact on the Company's results of operations. The
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<PAGE> 17
performance of the Company's tenants is affected by economic conditions in the
regions and markets in which they compete.
NO LIMITATION IN ORGANIZATIONAL DOCUMENTS ON INCURRENCE OF DEBT
The Company intends to continue to maintain a conservative debt
capitalization with a ratio of debt to Total Market Capitalization (the sum of
the aggregate market value of the Company's Common Stock, the liquidation
preference on any preferred shares outstanding, and the Company's total
indebtedness, including the Company's proportionate share of indebtedness from
its unconsolidated joint venture properties) of less than 40%, but the
organizational documents of the Company do not contain any limitation on the
amount or percentage of indebtedness the Company may incur. Each of the
Indenture (as defined below) and the Company's Line of Credit under which the
Company has outstanding certain indebtedness contains limits on the Company's
ability to incur indebtedness. Nevertheless, the Company could become more
highly leveraged, resulting in an increase in debt service that could adversely
affect the Company's ability to make expected distributions to shareholders and
in an increased risk of default on its obligations.
ADVERSE IMPACT ON DISTRIBUTIONS OF FAILURE TO QUALIFY AS A REIT
Since the Company's commencement of operations in 1991, the Company has
operated in a manner to qualify as a REIT under the Code, and the Company
intends to continue to operate in such a manner so as to permit the Company to
qualify as a REIT under the Code. Although the Company believes that it will
continue to operate in such a manner, no assurance can be given that the Company
will remain qualified as a REIT. If in any taxable year the Company were to fail
to qualify as a REIT, the Company would not be allowed a deduction for
distributions to shareholders in computing taxable income and would be subject
to Federal income tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates.
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<PAGE> 18
DESCRIPTION OF THE NOTES
The following description of the particular terms of the Notes offered
hereby (which are included in the "Debt Securities" described in the
accompanying Prospectus) supplements, and, to the extent inconsistent therewith,
replaces the description of the general terms and provisions of Debt Securities
set forth in the Prospectus, to which description reference is hereby made. The
following statements relating to the Notes and the Indenture (as hereinafter
defined) are summaries of provisions contained therein and do not purport to be
complete. Such statements are qualified by reference to the provisions of the
Notes and the Indenture including the definitions therein of certain terms.
(Capitalized terms not otherwise defined herein shall have the meanings given to
them in the Prospectus.)
GENERAL
The Notes are to be issued pursuant to an Indenture, dated as of October
27, 1995 (the "Indenture"), between the Company and First Trust of California,
National Association as trustee (the "Trustee"). The Notes will be limited to
$55,000,000 in aggregate principal amount. The terms of the Notes include those
provisions contained in the Notes and the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939, as amended (the
"TIA"). The Notes are subject to all such terms, and holders of Notes are
referred to the Notes and the Indenture and the TIA for a statement thereof.
Copies of the Indenture and the form of the Notes are available for inspection
at the office of the Trustee located at 333 South Grand Avenue, Suite 3020, Los
Angeles, California 90071 (the "Corporate Trust Office").
The Notes will be direct, unsecured and unsubordinated obligations of the
Company and will rank equally with all other unsecured and unsubordinated
indebtedness of the Company from time to time outstanding, including the
Company's 1995 Notes. However, the Notes will be effectively subordinated to
mortgages and other secured indebtedness of the Company. Without giving effect
to the proposed acquisition of Centennial Plaza in Oklahoma City, upon
consummation of this Offering, the aggregate secured indebtedness of the Company
will be $2.75 million. See "Business and Properties -- Recent
Developments -- 1996 Acquisitions and Property Development." Adjusted on a pro
forma basis for this Offering, the Equity Offering and the acquisition of the
Dallas property, the total outstanding indebtedness of the Company as of June
30, 1996 was $156.9 million. See "Capitalization." Subject to certain
limitations set forth in the Notes and the Indenture described below under the
caption "Description of the Notes -- Additional Covenants of the Company," the
Indenture will permit the Company to incur additional indebtedness and
additional secured indebtedness.
The Notes will be issued only in fully registered, book-entry form, in
denominations of $1,000 and integral multiples thereof, except under the limited
circumstances described below under "Description of the Notes -- Book-Entry
System."
Except as described under "Description of Debt Securities -- Certain
Covenants -- Existence," "Description of Debt Securities -- Merger,
Consolidation or Sale" and "Description of Debt Securities Events of Default,
Notice and Waiver" in the accompanying Prospectus and under "Description of the
Notes -- Additional Covenants of the Company" below, the Notes and the Indenture
do not contain any other provisions that would afford Holders (as defined below)
of the Notes protection in the event of (i) a highly leveraged or similar
transaction involving the Company, the management of the Company, or any
affiliate of either such party, (ii) a change of control or (iii) a
reorganization, restructuring, merger or similar transaction involving the
Company that may adversely affect the Holders of the Notes. In addition, subject
to the limitations set forth under "Description of Debt Securities -- Merger,
Consolidation or Sale" in the accompanying Prospectus, the Company may, in the
future, enter into certain transactions such as the sale of all or substantially
all of its assets or the merger or consolidation of the Company that would
increase the amount of the Company's indebtedness or substantially reduce or
eliminate the Company's assets, and which may have an adverse effect on the
Company's ability to service its indebtedness, including the Notes.
The Company has no present intention of engaging in a highly leveraged or
similar transaction involving the Company. In addition, certain restrictions on
ownership and transfers of the Company's capital stock designed to preserve its
status as a REIT may act to prevent or hinder any such transaction or a change
of control.
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<PAGE> 19
PAYMENT OF PRINCIPAL AND INTEREST ON THE NOTES
Interest on the Notes will accrue at the rate set forth on the cover page
of this Prospectus Supplement from November , 1996, or the most recent
Interest Payment Date (as defined below) to which interest has been paid or
provided for, and will be payable in U.S. dollars semi-annually in arrears on
May 1 and November 1 of each year (each, an "Interest Payment Date"), commencing
May 1, 1997, and on the Maturity Date (as hereinafter defined). The interest so
payable will be paid to the person (the "Holder") in whose name the applicable
Note is registered at the close of business on the date (whether or not a
Business Day, as defined below) fifteen calendar days preceding the applicable
Interest Payment Date or the Maturity Date (each, a "Regular Record Date"). The
principal of each Note payable on the Maturity Date will be paid against
presentation and surrender thereof at the Corporate Trust Office of the Trustee,
in U.S. Dollars. Interest on the Notes will be computed on the basis of a
360-day year consisting of twelve 30-day months.
MATURITY
The Notes will mature on November , 2006 (the "Maturity Date"). The Notes
may be redeemed at any time after November , 2001 at the option of the
Company. See "-- Optional Redemption." In addition, the Notes will not be
entitled to the benefit of any sinking fund.
OPTIONAL REDEMPTION
The Notes may be redeemed at any time after November , 2001, at the
option of the Company, in whole or from time to time in part, at a redemption
price equal to the sum of (i) the principal amount of the Notes (or portion
thereof) being redeemed plus accrued interest thereon to the redemption date and
(ii) the Make-Whole Amount (as defined below), if any, with respect to such
Notes (or portion thereof) (the "Redemption Price").
If notice has been given as provided in the Indenture and funds for the
redemption of any Notes (or any portion thereof) called for redemption shall
have been made available on the redemption date referred to in such notice, such
Notes (or any portion thereof) will cease to bear interest on the date fixed for
such redemption specified in such notice and the only right of the Holders of
such Notes will be to receive payment of the Redemption Price.
Notice of any optional redemption of any Notes (or any portion thereof)
will be given to Holders at their addresses, as shown in the security register
for such Notes, not more than 60 nor less than 30 days prior to the date fixed
for redemption. The notice of redemption will specify, among other items, the
Redemption Price and the principal amount of the Notes held by such Holder to be
redeemed.
The Company will notify the Trustee at least 45 days prior to giving notice
of redemption (or such shorter period as is satisfactory to the Trustee) of the
aggregate principal amount of such Notes to be redeemed and their redemption
date. If less than all of the Notes are to be redeemed at the option of the
Company, the Trustee shall select, in such manner as it shall deem fair and
appropriate, such Notes to be redeemed in whole or in part.
As used herein:
"MAKE-WHOLE AMOUNT" means, in connection with any optional redemption
of any Notes, the excess, if any, of (i) the aggregate present value as of
the date of such redemption of each dollar of principal being redeemed and
the amount of interest (exclusive of interest accrued to the date of
redemption) that would have been payable in respect of each such dollar if
such redemption had not been made, determined by discounting, on a
semi-annual basis, such principal and interest at the Reinvestment Rate
(determined on the third Business Day preceding the date such notice of
redemption is given) from the respective dates on which such principal and
interest would have been payable if such redemption had not been made, over
(ii) the aggregate principal amount of the Notes being redeemed or paid.
"REINVESTMENT RATE" means 0.25% plus the arithmetic mean of the yields
under the respective heading "Week Ending" published in the most recent
Statistical Release under the caption "Treasury
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<PAGE> 20
Constant Maturities" for the maturity (rounded to the nearest month)
corresponding to the remaining life to maturity, as of the payment date of
the principal being redeemed or paid. If no maturity exactly corresponds to
such maturity, yields for the two published maturities most closely
corresponding to such maturity shall be calculated pursuant to the
immediately preceding sentence and the Reinvestment Rate shall be
interpolated or extrapolated from such yields on a straight-line basis,
rounding in each of such relevant periods to the nearest month. For the
purpose of calculating the Reinvestment Rate, the most recent Statistical
Release published prior to the date of determination of the Make-Whole
Amount shall be used.
"STATISTICAL RELEASE" means the statistical release designated
"H.15(519)" or any successor publication which is published weekly by the
Federal Reserve System and which establishes yields on actively traded
United States government securities adjusted to constant maturities, or, if
such statistical release is not published at the time of any determination
under the Indenture, then such other reasonably comparable index which
shall be designated by the Company.
ADDITIONAL COVENANTS OF THE COMPANY
Reference is made to the section entitled "Description of Debt Securities"
in the accompanying Prospectus for a description of the covenants applicable to
the Notes. Compliance with such covenants, and those described herein, generally
may not be waived by the Company's Board of Directors or the Trustee unless the
Holders of at least a majority in principal amount of all outstanding Notes
consent to such waiver, provided, however, that the defeasance and covenant
defeasance provisions of the Indenture described under "Description of Debt
Securities -- Discharge, Defeasance and Covenant Defeasance" in the accompanying
Prospectus will apply to the Notes.
In addition to the foregoing, the Notes contain the following additional
covenants of the Company for the benefit of the Holders of the Notes:
Limitation on Debt. The Company will not, and will not permit any
subsidiary to, incur any Debt if, after giving effect thereto, the aggregate
outstanding principal amount of all Debt of the Company and its subsidiaries is
greater than fifty percent (50%) of the sum of (i) the Company's Total Assets at
the end of the Company's fiscal quarter ended immediately prior to the
incurrence of such Debt and (ii) the aggregate purchase price of real estate
assets acquired after such immediately preceding fiscal quarter, including any
such assets acquired in connection with the incurrence of such additional Debt.
Limitation on Secured Debt. The Company will not, and will not permit any
subsidiary to, incur any Debt secured by any mortgage or other lien upon any of
its properties, and will not otherwise grant or convey any such mortgage or
other lien, if, after giving effect thereto, the aggregate outstanding principal
amount of secured Debt is greater than thirty percent (30%) of the sum of (i)
the Company's Total Assets, at the end of the Company's fiscal quarter ended
immediately prior to the incurrence of such Debt and (ii) the aggregate purchase
price of real estate assets acquired after such immediately preceding fiscal
quarter, including any such assets acquired in connection with the incurrence of
such additional Debt.
Interest Expense Coverage. The Company will not incur any Debt if, after
giving effect to the incurrence of such Debt, the Company's ratio of Total Cash
Flow to Total Interest Expense, at the end of each fiscal year of the Company,
will have been less than 2:1, on a pro forma basis after giving effect thereto
and to the application of the proceeds therefrom, and calculated on the
assumption that (i) such Debt and any other Debt incurred by the Company since
the first day of such fiscal year and the application of the proceeds therefrom,
including to refinance other Debt, had occurred at the beginning of such fiscal
year; (ii) the repayment or retirement of any other Debt by the Company since
the first day of such fiscal year had been repaid or retired at the beginning of
such period (except that, in making such computation, the amount of Debt under
any revolving credit facility shall be computed based upon the average daily
balance of such Debt during such period); (iii) in the case of Acquired Debt or
Debt incurred in connection with any acquisition since the first day of such
fiscal year, the related acquisition had occurred as of the first day of such
period with the appropriate adjustments with respect to such acquisition being
included in such pro forma calculation; and (iv) in the case of any acquisition
or disposition by the Company of any asset or group of assets since the first
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<PAGE> 21
day of such fiscal year, whether by merger, stock purchase or sale, or asset
purchase or sale, such acquisition or disposition or any related repayment of
Debt had occurred as of the first day of such period with the appropriate
adjustments with respect to such acquisition or disposition being included in
such pro forma calculation.
Maintenance of Total Unencumbered Assets. The Company will maintain at all
times Total Unencumbered Assets of not less than 200% of the aggregate
outstanding principal amount of all unsecured Debt of the Company.
Restrictions on Distributions. The Company will not make any payment of
dividends if the aggregate amount of dividends paid in the twelve months
preceding the dividend payment date (including the dividends paid on such date)
will exceed 95% of its Funds From Operations in the period of twelve consecutive
months ended on the last day of the last month ended prior to such payment date;
provided, however, that the foregoing restriction shall not apply to any payment
of dividends or other action which is necessary to maintain the Company's status
as a REIT for Federal income tax purposes.
As used in the Notes, the following terms have the meanings set forth
below:
"Acquired Debt" means Debt of a Person (i) existing at the time such Person
becomes a subsidiary or (ii) assumed in connection with the acquisition of
assets from such Person, in each case, other than Debt incurred in connection
with, or in contemplation of, such Person becoming a subsidiary or such
acquisition. Acquired Debt shall be deemed to be incurred on the date of the
related acquisition of assets from any Person or the date the acquired Person
becomes a subsidiary.
"Debt" means any indebtedness of the Company or any subsidiary, in respect
of (i) borrowed money or evidenced by bonds, notes, debentures or similar
instruments, (ii) indebtedness secured by any mortgage, pledge, lien, charge,
encumbrance or any security interest existing on property owned by the Company
or any subsidiary, (iii) letters of credit or amounts representing the balance
deferred and unpaid of the purchase price of any property except any such
balance that constitutes an accrued expense or trade payable or (iv) capitalized
leases, in the case of items of indebtedness under (i) through (iii) above to
the extent that any such items (other than letters of credit) would appear as a
liability on the Company's Consolidated Balance Sheet in accordance with GAAP,
and also includes, to the extent not otherwise included, any obligation by the
Company or any subsidiary to be liable for, or to pay, as obligor, guarantor or
otherwise (other than for purposes of collection in the ordinary course of
business), indebtedness of another person (other than the Company or any
subsidiary).
"Funds From Operations" means consolidated net income, computed in
accordance with GAAP, excluding gains (or losses) from debt restructuring and
sales of property, plus depreciation and amortization, and after adjustments for
unconsolidated partnerships and joint ventures. Adjustments for unconsolidated
partnerships and joint ventures will be calculated to reflect Funds From
Operations on the same basis. The Company computes Funds From Operations in
accordance with standards established by NAREIT.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Total Assets" means total assets of the Company on a consolidated basis,
computed in accordance with GAAP, plus accumulated depreciation.
"Total Cash Flow" means, for any period, consolidated net income of the
Company, computed in accordance with GAAP, excluding gains (or losses) from debt
restructuring and sales of property, plus depreciation and amortization, Total
Interest Expense, and provisions for income taxes, all to the extent deducted in
computing consolidated net income and after adjustments for deferred rent and
unconsolidated partnerships and joint ventures.
"Total Interest Expense" means, for any period, the aggregate amount,
computed in accordance with GAAP, of interest expense incurred during such
period by the Company on a consolidated basis in respect of all Debt, including
interest capitalized to construction-in-process; less amortization of
capitalized loan fees, costs and expenses incurred in connection with such Debt
or in connection with interest rate caps, collars,
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<PAGE> 22
swaps, or similar agreements in respect of any such Debt, all to the extent
included in the computation of interest expense.
"Total Unencumbered Assets" means the aggregate book value of all assets of
the Company and its subsidiaries, plus accumulated depreciation, which are not
subject to any mortgage, pledge, lien, security interest or other encumbrance.
BOOK-ENTRY SYSTEM
Each Note will be issued in the form of a single fully-registered Note in
book-entry form (each, a "Global Note") which will be deposited with, or on
behalf of, The Depository Trust Company ("DTC") and registered in the name of
DTC's nominee. Except as set forth below, a Global Note may not be transferred
except as a whole by DTC to a nominee of DTC or by a nominee of DTC to DTC or
another nominee of DTC or by DTC or any such nominee to a successor of DTC or a
nominee of such successor.
So long as DTC or its nominee is the registered owner of a Global Note, DTC
or its nominee, as the case may be, will be considered the sole Holder of the
Notes represented by such Global Note for all purposes under the Indenture.
Except as provided below, owners of beneficial interests in a Global Note will
not be entitled to have Notes represented by such Global Note registered in
their names, will not receive or be entitled to receive physical delivery of
Notes of such series in certificated form and will not be considered the
registered owners or Holders thereof under the Indenture.
If (i) DTC is at any time unwilling or unable to continue as depository or
if any time DTC ceases to be a clearing agency registered under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and a successor
depository is not appointed by the Company within 90 days, (ii) an Event of
Default under the Indenture or the Supplemental Indenture with respect to the
Notes has occurred and is continuing and the beneficial owners representing a
majority in principal amount of the Notes represented by a Global Note advise
DTC to cease acting as depository or (iii) the Company, in its sole discretion,
determines at any time that the Notes shall no longer be represented by a Global
Note, the Company will issue individual Notes of the applicable in certificated
form in exchange for the related Global Note. In any such instance, an owner of
a beneficial interest in such Global Note will be entitled to physical delivery
of individual Notes in certificated form of like series and tenor, equal in
principal amount to such beneficial interest and to have such Notes in
certificated form registered in its name. Notes so issued in certificated form
will be issued in denominations of $1,000 or any integral multiple thereof, and
will be issued in registered form only, without coupons.
The following is based on information furnished by DTC:
DTC will act as securities depository for the Notes. The Notes will be
issued as fully registered securities registered in the name of Cede & Co.
(DTC's partnership nominee). One fully registered Note certificate is
issued in the aggregate principal amount of the Notes.
DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code,
and a clearing agency" registered pursuant to the provisions of Section 17A
of the Exchange Act, DTC holds securities that its participants
("Participants") deposit with DTC. DTC also facilitates the settlement
among Participants of securities transactions, such as transfers and
pledges, in deposited securities through electronic computerized book-entry
changes in Participants' accounts, thereby eliminating the need for
physical movement of securities certificates. Direct Participants include
securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations ("Direct Participants"). DTC
is owned by a number of its Direct Participants and by the New York Stock
Exchange, Inc., the American Stock Exchange, Inc. and the National
Association of Securities Dealers, Inc. Access to the DTC system is also
available to others such as securities brokers and dealers, banks and trust
companies that clear through or maintain a custodial relationship with a
Direct Participant, either directly or indirectly ("Indirect
Participants"). The rules applicable to DTC and its Participants are on
file with the Securities and Exchange Commission.
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<PAGE> 23
Purchases of Notes under the DTC system must be made by or through
Direct Participants, which will receive a credit for the Notes on DTC's
records. The ownership interest of each actual purchaser of each Note
("Beneficial Owner") is in turn recorded on the Direct and Indirect
Participants' records. A Beneficial Owner does not receive written
confirmation from DTC of its purchase, but such Beneficial Owner is
expected to receive a written confirmation providing details of the
transaction, as well as periodic statements of its holdings, from the
Direct or Indirect Participant through which such Beneficial Owner entered
into the transaction. Transfers of ownership interests in Notes are
accomplished by entries made on the books of Participants acting on behalf
of Beneficial Owners. Beneficial Owners do not receive certificates
representing their ownership interests in the Notes, except in the event
that use of the book-entry system for the Notes is discontinued.
To facilitate subsequent transfers, the Notes are registered in the
name of DTC's partnership nominee, Cede & Co. The deposit of the Notes with
DTC and their registration in the name of Cede & Co. effects no change in
beneficial ownership. DTC has no knowledge of the actual Beneficial Owners
of the Notes; DTC records reflect only the identity of the Direct
Participants to whose accounts the Notes are credited, which may or may not
be the Beneficial Owners. The Participants remain responsible for keeping
account of their holdings on behalf of their customers.
Delivery of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by
Direct Participants and Indirect Participants to Beneficial Owners are
governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Neither DTC nor Cede & Co. will consent or vote with respect to the
Notes. Under its usual procedures, DTC mails a proxy (an "Omnibus Proxy")
to the issuer as soon as possible after the record date. The Omnibus Proxy
assigns Cede & Co's consenting or voting rights to those Direct
Participants to whose accounts the Notes are credited on the record date
(identified on a list attached to the Omnibus Proxy).
Principal and interest payments on the Notes will be made by the
Company to the Trustee and from the Trustee to DTC. DTC's practice is to
credit Direct Participant's accounts on the payable date in accordance with
their respective holdings as shown on DTC's records unless DTC has reason
to believe that it will not receive payment on the payable date. Payments
by Participants to Beneficial Owners will be governed by standing
instructions and customary practices, as is the case with securities held
for the accounts of customers in bearer form or registered in "street
name," and will be the responsibility of such Participant and not of DTC,
the Trustee or the Company subject to any statutory or regulatory
requirements as may be in effect from time to time. Payment of principal
and interest to DTC is the responsibility of the Company or the Trustee,
disbursement of such payments to Direct Participants is the responsibility
of DTC, and disbursement of such payments to the Beneficial Owners is the
responsibility of Direct and Indirect Participants.
DTC may discontinue providing its services as securities depository
with respect to the Notes at any time by giving reasonable notice to the
Company or the Trustee. Under such circumstances, in the event that a
successor securities depository is not appointed, Note certificates are
required to be printed and delivered.
The Company may decide to discontinue use of the system of book-entry
transfers through DTC (or a successor securities depository). In that
event, Note certificates will be printed and delivered.
None of the Company, the Underwriters or the Trustee will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial interests in a Global Note, or for
maintaining, supervising or reviewing any records relating to such beneficial
interests.
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<PAGE> 24
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the Notes will be made by the Underwriters in immediately
available funds. All payments of principal and interest in respect of the Notes,
will be made by the Company in immediately available funds.
Secondary trading in long-term notes and debentures of corporate issuers is
generally settled in clearing house or next-day funds. In contrast, the Notes
will trade in DTC's Same-Day Funds Settlement System until maturity, or until
the Notes are issued in certificated form, and secondary market trading activity
in the Notes will therefore be required by DTC to settle in immediately
available funds. No assurance can be given as to the effect, if any, of
settlement in immediately available funds on trading activity in the Notes.
S-24
<PAGE> 25
UNDERWRITING
Subject to the terms and conditions contained in a purchase agreement and
related pricing agreement, each dated November , 1996 (the "Underwriting
Agreement"), the Company has agreed to sell to Merrill Lynch, Pierce, Fenner &
Smith Incorporated and J.P. Morgan Securities Inc. (collectively, the
"Underwriters"), and the Underwriters have severally agreed to purchase from the
Company, the principal amount of Notes set forth opposite their names below.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
UNDERWRITER NOTES
-----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated............................................... $
J.P. Morgan Securities Inc. ............................................
-----------
Total...................................................... $55,000,000
===========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, and that the
Underwriters will be obligated to purchase all of the Notes if any are
purchased.
The Underwriters have advised the Company that they propose initially to
offer the Notes to the public at the public offering price set forth on the
cover page of this Prospectus Supplement, and to certain dealers at such price
less a concession not in excess of % of principal amount thereof. The
Underwriters may allow, and such dealers may reallow, a discount not in excess
of % of principal amount to certain other dealers. After the initial public
offering of the Notes, the public offering price, concession and discount may be
changed.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended,
or to contribute to payments the Underwriters may be required to make in respect
thereof.
The Company has not applied for listing of the Notes on any securities
exchange. The Notes are a new issue of securities with no established trading
market. The Company has been advised by the Underwriters that the Underwriters
intend to make a market in the Notes as permitted by applicable laws and
regulations, but the Underwriters are not obligated to do so and may discontinue
market-making at any time without notice. No assurance can be given as to the
liquidity of the trading market for the Notes.
Morgan Guaranty Trust Company of New York, an affiliate of J.P. Morgan
Securities Inc. and lead agent for the Company's Line of Credit, has committed
to lend up to $25.0 million to the Company under the Company's Line of Credit.
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<PAGE> 26
LEGAL MATTERS
The validity of the Notes offered hereby will be passed upon for the
Company by Gibson, Dunn & Crutcher LLP, Los Angeles, California. Certain legal
matters relating to the Offering will be passed upon for the Underwriters by
Latham & Watkins, Los Angeles, California. Gibson, Dunn & Crutcher LLP and
Latham & Watkins will rely as to all matters of Maryland law, including the
legality of the Notes, on the opinion of Ballard Spahr Andrews & Ingersoll,
Baltimore, Maryland.
EXPERTS
The consolidated financial statements and financial statement schedule
included in the Company's Annual Report on Form 10-K incorporated by reference
in the accompanying Prospectus have been audited by Ernst & Young LLP,
independent auditors, to the extent indicated in their report thereon. Such
consolidated financial statements have been incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
With respect to the unaudited condensed consolidated interim financial
information for the three-month periods ended March 31, 1996 and March 31, 1995
and the three-month and six-month periods ended June 30, 1996 and June 30, 1995,
incorporated by reference in the accompanying Prospectus, Ernst & Young LLP have
reported that they have applied limited procedures in accordance with
professional standards for the review of such information. However, their
separate reports, included in the Company's Quarterly Reports on Form 10-Q for
the quarters ended March 31, 1996 and June 30, 1996, and incorporated herein by
reference, state that they did not audit and they do not express an opinion on
that interim financial information. Accordingly, the degree of reliance on their
reports on such information should be restricted considering the limited nature
of the review procedures applied.
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<PAGE> 27
PROSPECTUS
- ----------
$175,000,000
THE PRICE REIT, INC.
DEBT SECURITIES, PREFERRED STOCK,
COMMON STOCK AND WARRANTS
------------------------
The Price REIT, Inc. (the "Company") may from time to time offer (i)
unsecured debt securities, which may be either senior debt securities ("Senior
Securities") or subordinated debt securities ("Subordinated Securities," and
together with the Senior Securities, the "Debt Securities"), (ii) shares of its
preferred stock, $0.01 par value per share (the "Preferred Stock"), (iii) shares
of its common stock, $0.01 par value per share (the "Common Stock"), or (iv)
warrants to purchase Preferred Stock or Common Stock (the "Warrants") with an
aggregate public offering price of up to $175,000,000 on terms to be determined
at the time of the offering. The Debt Securities, Preferred Stock, Common Stock
and Warrants (collectively, the "Offered Securities") may be offered, separately
or together, in separate amounts, at prices and on terms to be set forth in a
supplement to the Prospectus (each a "Prospectus Supplement").
The specific terms of the Offered Securities in respect of which this
Prospectus is being delivered will be set forth in the applicable Prospectus
Supplement and will include, where applicable (i) in the case of Debt
Securities, the specific title, aggregate principal amount, ranking, purchase
price, maturity, interest rate (which may be fixed or variable) and the time of
payment of interest (if any), authorized denominations, terms (if any) for the
subordination, redemption or conversion thereof, and terms (if any) for a
sinking fund; (ii) in the case of Preferred Stock, the specific title and stated
value, any dividend, liquidation, redemption, conversion, voting and other
rights, and any initial public offering price; (iii) in the case of Common
Stock, the specific title and stated value and any initial public offering
price; and (iv) in the case of Warrants, the duration, offering price, exercise
price and detachability, as well as the terms of which and the securities for
which such Warrants may be exercised. In addition, such specific terms may
include limitations on direct or beneficial ownership and restrictions on
transfer of the Offered Securities, in each case as may be appropriate to
preserve the status of the Company as a real estate investment trust ("REIT")
for federal income tax purposes. See "Federal Income Tax Considerations."
The applicable Prospectus Supplement will also contain information, where
applicable, about certain United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Offered Securities
covered by such Prospectus Supplement.
The Offered Securities may be offered directly, through agents designated
from time to time by the Company, or to or through underwriters or dealers. If
any agents or underwriters are involved in the sale of any of the Offered
Securities, their names, and any applicable purchase price, fee, commission or
discount arrangement between or among them, will be set forth or will be
calculable from the information set forth in the applicable Prospectus
Supplement. See "Plan of Distribution." No Offered Securities may be sold
without delivery of the applicable Prospectus Supplement describing the method
and terms of the offering of such Offered Securities.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT RELATES
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON
OR ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION
TO THE CONTRARY IS UNLAWFUL.
------------------------
The date of this Prospectus is September 1, 1995.
<PAGE> 28
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). The Registration
Statement, and exhibits and schedules forming a part thereof and the reports,
proxy statements and other information filed by the Company with the Commission
in accordance with the Exchange Act can be inspected and copied at the
Commission's Public Reference Section, 450 Fifth Street, N.W., Washington, D.C.,
20549, and at the following regional offices of the Commission: Seven World
Trade Center, 13th Floor, New York, New York 10048 and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can be
obtained from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. In addition, the Common Stock
is listed on the New York Stock Exchange and similar information concerning the
Company can be inspected and copied at the offices of the New York Stock
Exchange, Inc., 20 Broad Street, New York, New York 10005.
The Company has filed with the Commission a registration statement (the
"Registration Statement") (of which this Prospectus is a part) under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Offered Securities. This Prospectus does not contain all of the information set
forth in the Registration Statement, certain portions of which have been omitted
as permitted by the rules and regulations of the Commission. Statements
contained in this Prospectus as to the contents of any contract or other
documents are not necessarily complete, and in each instance reference is made
to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference and the exhibits and schedules thereto. For further information
regarding the Company and the Offered Securities, reference is hereby made to
the Registration Statement and such exhibits and schedules which may be obtained
from the Commission at its principal office in Washington, D.C., upon payment of
the fees prescribed by the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by the Company under the
Exchange Act with the Commission and are incorporated herein by reference:
a. Annual Report on Form 10-K for the year ended December 31, 1994;
b. Annual Report on Form 10-K/A for the year ended December 31, 1994;
c. Quarterly Reports on Form 10-Q for the quarters ended March 31, 1995,
and June 30, 1995; and
d. The description of the Registrant's Common Stock contained in the
Company's Registration Statement on Form 8-A (File No. 1-13432) dated
October 25, 1994 and any amendments or reports filed for the purpose of
updating such description.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
and 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering of the Offered Securities shall be
deemed to be incorporated by reference in this Prospectus and to be part hereof
from the date of filing such documents.
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
(or in the applicable Prospectus Supplement) or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
Copies of all documents which are incorporated herein by reference (not
including the exhibits to such information, unless such exhibits are
specifically incorporated by reference in such information) will be provided
without charge to each person, including any beneficial owner, to whom this
Prospectus is delivered upon written or oral request. Requests should be
directed to the Secretary, The Price REIT, Inc., 7979 Ivanhoe Avenue, Suite 524,
La Jolla, California 92037, (619) 551-2320.
2
<PAGE> 29
THE COMPANY
The Price REIT, Inc. (the "Company") is a self-administered and
self-managed equity real estate investment trust ("REIT") which primarily owns
destination retail shopping center properties (also known as "power centers").
The Company currently owns 13 power centers and one stand alone retail warehouse
(the "Properties") located in six states containing a total of 3.7 million
square feet of gross leasable space with approximately 221 tenants with an
overall occupancy rate of approximately 98% at June 30, 1995.
Power centers are typically open-air centers ranging in size from 200,000
to 700,000 square feet of gross leasable area, and are usually comprised of one
or more national retail anchors, often in a warehouse format. Anchor retail
tenants typically occupy between 60% and 90% of the total square footage in a
power center. The tenant mix in a power center is designed to draw consumers
from up to a 15-mile radius, creating a shopping "destination." The majority of
the Company's anchor tenants are retail warehouses, which are consumer-oriented
facilities with at least 25,000 to 100,000 square feet of gross leasable area
offering a variety of products for business use, personal use or resale. The
retail warehouse format of merchandise display, direct manufacturer purchasing,
low mark-ups and rapid inventory turnover is designed to provide substantial
consumer savings compared to other sources of similar merchandise.
Each of the Company's power centers is anchored by one or more national
retail tenants such as Home Depot, Price Club, HomeBase, The Sports Authority,
Burlington Coat Factory or PetsMart. The Company typically seeks to structure
tenant leases as "triple net" leases, under the terms of which the tenant is
responsible for its pro rata share of costs and expenses associated with the
ongoing operation of the property, including but not limited to real property
taxes and assessments, repairs and maintenance, and insurance. The anchor
tenants generally have primary lease terms of ten to twenty years and smaller
tenants typically have primary lease terms of five to ten years. The Company's
leases generally provide for contractual rent increases over the life of the
lease based on a fixed amount or consumer price indices, and, in certain cases,
percentage rent, calculated as a percentage of a tenant's gross sales above a
predetermined threshold. The Company's principal executive office is located at
7979 Ivanhoe Avenue, Suite 524, La Jolla, California 92037, and its telephone
number is (619) 551-2320.
TAX STATUS OF THE COMPANY
The Company has elected to be taxed as a REIT under Sections 856 through
860 of the Internal Revenue Code of 1986, as amended, commencing with its
taxable year ended December 31, 1991. As a REIT, the Company generally is not
subject to Federal income tax on net income that it distributes to its
stockholders. Even though the Company qualifies for taxation as a REIT, the
Company may be subject to certain Federal, state and local taxes on its income
and property. See "Federal Income Tax Considerations."
USE OF PROCEEDS
Unless otherwise indicated in the accompanying Prospectus Supplement, the
Company intends to use the proceeds for general corporate purposes including,
without limitation, the acquisition and development of additional properties and
the repayment of debt. The proceeds from the sale of the Offered Securities
initially may be temporarily invested in short-term securities.
EARNINGS TO FIXED CHARGES RATIOS
The Company's ratios of earnings to fixed charges for the years ended
December 31, 1992, 1993 and 1994 and the six-month period ended June 30, 1995
were 2.28x, 3.07x, 4.73x and 3.33x, respectively. The ratio of earnings to fixed
charges is computed by dividing earnings by fixed charges. For this purpose,
earnings consist of pre-tax income from continuing operations plus fixed
charges. Fixed charges consist of interest expense and the amortization of debt
issuance costs. To date, the Company has not issued any Preferred Stock;
therefore, the ratios of earnings to combined fixed charges and preferred stock
dividend requirements are the same as the ratios of earnings to fixed charges
presented above.
3
<PAGE> 30
DESCRIPTION OF DEBT SECURITIES
The following sets forth certain general terms and provisions of the
Indenture under which the Debt Securities are to be issued. The particular terms
of the Debt Securities will be set forth in a Prospectus Supplement relating to
such Debt Securities.
The Debt Securities are to be issued under an Indenture, as amended or
supplemented from time to time (the "Indenture"), between the Company and a
Trustee chosen by the Company and qualified to act as such under the Trust
Indenture Act of 1939 as amended (the "TIA") (together with any other trustee(s)
appointed in a supplemental indenture with respect to a particular series, the
"Trustee"). The Indenture has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part and will be available for
inspection at the corporate trust office of the Trustee, or as described above
under "Available Information." The Indenture is subject to, and governed by, the
TIA. The Company will execute the Indenture if and when the Company issues the
Debt Securities. The statements made hereunder relating to the Indenture and the
Debt Securities to be issued hereunder are summaries of certain provisions
thereof and do not purport to be complete and are subject to, and are qualified
in their entirety by reference to, all provisions of the Indenture and such Debt
Securities. All section references appearing herein are to sections of the
Indenture, and capitalized terms used but not defined herein shall have the
respective meanings set forth in the Indenture.
GENERAL
The Debt Securities will be direct, unsecured obligations of the Company.
Except for any series of Debt Securities which is specifically subordinated to
other indebtedness of the Company, the Debt Securities will rank equally with
all other unsecured and unsubordinated indebtedness of the Company. Under the
Indenture, the Debt Securities may be issued without limit as to aggregate
principal amount, in one or more series, in each case as established from time
to time in or pursuant to authority granted by a resolution of the Board of
Directors of the Company or as established in one or more indentures
supplemental to the Indenture. All Debt Securities of one series need not be
issued at the same time and, unless otherwise provided, a series may be
reopened, without the consent of the Holders of the Debt Securities of such
series, for issuances of additional Debt Securities of such series (Section
301).
The Indenture provides that there may be more than one Trustee thereunder,
each with respect to one or more series of Debt Securities. Any Trustee under
the Indenture may resign or be removed with respect to one or more series of
Debt Securities, and a successor Trustee may be appointed to act with respect to
such series (Section 608). In the event that two or more persons are acting as
Trustee with respect to different series of Debt Securities, each such Trustee
shall be a trustee of a trust under the Indenture separate and apart from the
trust administered by any other Trustee (Section 609), and, except otherwise
indicated herein, any action described herein to be taken by the Trustee may be
taken by each such Trustee with respect to, and only with respect to, the one or
more series of Debt Securities for which it is Trustee under the Indenture.
TERMS
Reference is made to the Prospectus Supplement relating to the series of
Debt Securities being offered for the specific terms thereof, including:
(1) the title of such Debt Securities;
(2) the aggregate principal amount of such Debt Securities and any limit
on such aggregate principal amount;
(3) the percentage of the principal amount at which such Debt Securities
will be issued and, if other than the principal amount thereof, the
portion of the principal amount thereof payable upon declaration of
acceleration of the maturity thereof, or (if applicable) the portion
of the principal amount of such Debt Securities which is convertible
into Common Stock or Preferred Stock, or the method by which any such
portion shall be determined;
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(4) the date or dates, or the method for determining such date or dates,
on which the principal of such Debt Securities will be payable;
(5) the rate or rates (which may be fixed or variable), or the method by
which such rate or rates shall be determined, at which such Debt
Securities will bear interest, if any;
(6) the date or dates, or the method for determining such date or dates,
from which any such interest will accrue, the Interest Payment Dates
on which any such interest will be payable, the Regular Record Dates
for such Interest Payment Dates, or the method by which such Dates
shall be determined, the Person to whom such interest shall be
payable, and the basis upon which interest shall be calculated if
other than that of a 360-day year of twelve 30-day months;
(7) the place or places where (i) the principal of (and premium, if any)
and interest, if any, on such Debt Securities will be payable, (ii)
such Debt Securities may be surrendered for conversion or registration
of transfer, exchange or conversion and (iii) notices or demands to or
upon the Company in respect of such Debt Securities and the Indenture
may be served;
(8) the period or periods within which, or the date or dates on which, the
price or prices at which and the terms and conditions upon which such
Debt Securities may be redeemed, as a whole or in part, at the option
of the Company, if the Company is to have such an option;
(9) the obligation, if any, of the Company to redeem, repay or repurchase
such Debt Securities pursuant to any sinking fund or analogous
provisions or at the option of a Holder thereof, and the period or
periods within which, or the date or dates on which, the price or
prices at which and the terms and conditions upon which such Debt
Securities are required to be redeemed, repaid or purchased, as a
whole or in part, pursuant to such obligation;
(10) if other than U.S. dollars, the currency or currencies in which such
Debt Securities are denominated and/or payable, which may be a foreign
currency or units of two or more foreign currencies or a composite
currency or currencies, and the terms and conditions relating thereto;
(11) whether the amount of payments of principal of (and premium, if any)
or interest, if any, on such Debt Securities may be determined with
reference to an index, formula or other method (which index, formula
or method may, but need not be, based on a currency, currencies,
currency unit or units or composite currency or currencies) and the
manner in which such amounts shall be determined;
(12) any additions to, modifications of or deletions from the terms of such
Debt Securities with respect to the Events of Default or covenants or
other provisions set forth in the Indenture;
(13) whether such Debt Securities will be issued in certificated or
book-entry from;
(14) whether such Debt Securities will be in registered or bearer form and,
if in registered form, the denominations thereof if other than $1,000
and any integral multiple thereof and, if in bearer form, the
denominations thereof and terms and conditions relating thereto;
(15) the applicability, if any, of the defeasance and covenant defeasance
provisions of Article XIV of the Indenture;
(16) if such Debt Securities are to be issued upon the exercise of debt
warrants, the time, manner and place for such Debt Securities to be
authenticated and delivered;
(17) the terms, if any, upon which such Debt Securities may be convertible
into Common Stock or Preferred Stock of the Company and the terms and
conditions upon which such conversion will be effected, including,
without limitation, the initial conversion price or rate, the
conversion period and, in connection with the preservation of the
Company's status as a REIT, limitations on the ownership of the Common
Stock or Preferred Stock into which such Debt Securities are
convertible;
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(18) the terms and conditions, if any, upon which such Debt Securities may
be subordinated to other indebtedness of the Company;
(19) whether and under what circumstances the Company will pay Additional
Amounts as contemplated in the Indenture on such Debt Securities in
respect of any tax, assessment or governmental charge and, if so,
whether the Company will have the option to redeem such Debt
Securities in lieu of making such payment; and
(20) any other terms of such Debt Securities not inconsistent with the
provisions of the Indenture (Section 301).
The Debt Securities may provide for less than the entire principal amount
thereof to be payable upon declaration of acceleration of the maturity thereof
("Original Issue Discount Securities"). Special U.S. federal income tax,
accounting and other considerations applicable to the Original Issue Discount
Securities will be described in the applicable Prospectus Supplement.
The Indenture does not contain any provisions that would limit the ability
of the Company to incur indebtedness or that would afford Holders of Debt
Securities protection in the event of a highly leveraged or similar transaction
involving the Company. However, restrictions on ownership and transfers of the
Common Stock and Preferred Stock, designed to preserve the Company's status as a
REIT, may prevent or hinder a change of control. Reference is made to the
applicable Prospectus Supplement for information with respect to any deletions
from, modifications of or additions to the Events of Default or covenants of the
Company that are described below, including any addition of a covenant or other
provision providing event risk or similar protection.
DENOMINATIONS, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise described in the applicable Prospectus Supplement, the
Debt Securities of any series will be issuable in denominations of $1,000 and
integral multiples thereof (Section 302).
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and premium, if any) and interest on any series of Debt Securities
will be payable at the corporate trust office of the Trustee, provided that, at
the option of the Company, payment of interest may be made by check mailed to
the address of the Person entitled thereto as it appears in the Security
Register or by wire transfer of funds to such Person at an account maintained
within the United States (Sections 301, 305, 307 and 1002).
All amounts paid by the Company to a paying agent or a Trustee for the
payment of the principal of or any premium or interest on any Debt Security
which remain unclaimed at the end of two years after the principal, premium or
interest has become due and payable will be repaid to the Company, and the
holder of the Debt Security thereafter may look only to the Company for payment
thereof.
Any interest not punctually paid or duly provided for on any Interest
Payment Date with respect to a Debt Security ("Defaulted Interest") will
forthwith cease to be payable to the Holder on the applicable Regular Record
Date and may either be paid to the person in whose name such Debt Security is
registered at the close of business on a special record date (the "Special
Record Date") for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to the Holder of such Debt Security not
less than 10 days prior to such Special Record Date, or may be paid at any time
in any other lawful manner, all as more completely described in the Indenture
(Sections 101 and 307).
Subject to certain limitations imposed upon Debt Securities issued in
book-entry form, the Debt Securities of any series will be exchangeable for
other Debt Securities of the same series, of a like aggregate principal amount
and tenor, of different authorized denominations upon surrender of such Debt
Securities at the corporate trust office of the Trustee. In addition, subject to
certain limitations imposed upon Debt Securities issued in book-entry form, the
Debt Securities of any series may be surrendered for conversion or registration
of transfer thereof at the corporate trust office of the Trustee referred to
above. Every Debt Security surrendered for conversion, registration of transfer
or exchange shall be duly endorsed or accompanied by a written instrument of
transfer. No service charge will be made for any registration of transfer or
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exchange of any Debt Securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith (Section 305). If the applicable Prospectus Supplement refers to any
transfer agent (in addition to the Trustee) initially designated by the Company
with respect to any series of Debt Securities, the Company may at any time
rescind the designation of any such transfer agent or approve a change in the
location through which any such transfer agent acts, except that the Company
will be required to maintain a transfer agent in each Place of Payment for such
series. The Company may at any time designate additional transfer agents with
respect to any series of Debt Securities (Section 1002).
Neither the Company nor the Trustee shall be required to (i) issue,
register the transfer of or exchange Debt Securities of any series during a
period beginning at the opening of business 15 days before any selection of Debt
Securities of that series to be redeemed and ending at the close of business of
the day of mailing of the relevant notice of redemption; (ii) register the
transfer of or exchange any Debt Security, or portion thereof, called for
redemption, except the unredeemed portion of any Debt Security being redeemed in
part; or (iii) issue, register the transfer of or exchange any Debt Security
which has been surrendered for repayment at the option of the Holder, except
that portion, if any, of such Debt Security which is not to be so repaid
(Section 305).
MERGER, CONSOLIDATION OR SALE
The Company may consolidate with, or sell, lease or convey all or
substantially all of its assets to, or merge with or into, any other trust or
corporation, provided (a) either the Company shall be the continuing entity, or
the successor (if other than the Company) formed by or resulting from any such
consolidation or merger or which shall have received the transfer of such assets
and is a corporation organized under the laws of any domestic jurisdiction and
shall expressly assume payment of the principal of (and premium, if any) and
interest on all of the Debt Securities and the due and punctual performance and
observance of all of the covenants and conditions contained in the Indenture;
(b) immediately after giving effect to such transaction and treating any
indebtedness which becomes an obligation of the Company or any Subsidiary as a
result thereof as having been incurred by the Company or such Subsidiary at the
time of such transaction, no Event of Default under the Indenture, and no event
which, after notice or the lapse of time, or both, would become such an Event of
Default, shall have occurred and be continuing; and (c) an officer's certificate
and legal opinion covering such conditions shall be delivered to the Trustee
(Sections 801 and 803).
CERTAIN COVENANTS
Existence. Except as permitted under "Merger, Consolidation or Sale," the
Indenture will require the Company to do or cause to be done all things
necessary to preserve and keep in full force and effect its existence, rights
(declaration and statutory) and franchises; provided, however, that the Company
shall not be required to preserve any right or franchise if it determines that
the preservation thereof is no longer desirable in the conduct of its business
and that the loss thereof is not disadvantageous in any material respect to the
Holders of the Debt Securities (Section 1004).
Maintenance of Properties. The Indenture will require the Company to cause
all of its material properties used or useful in the conduct of its business or
the business of any subsidiary to be maintained and kept in good condition,
repair and working order and supplied with all necessary equipment and will
cause to be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in the judgment of the Company may be necessary so
that the business carried on in connection therewith may be properly and
advantageously conducted at all times; provided, however, that the Company and
its subsidiaries shall not be prevented from selling or otherwise disposing of
their properties for value in the ordinary course of business. (Section 1007).
Insurance. The Indenture will require the Company to cause each of its and
its subsidiaries' insurable properties to be insured against loss of damage with
insurers of recognized responsibility and, if described in the applicable
Prospectus Supplement, in specified amounts and with insurers having a specified
rating from a recognized insurance rating service. (Section 1008).
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Payment of Taxes and Other Claims. The Indenture will require the Company
to pay or discharge or cause to be paid or discharged, before the same shall
become delinquent, (i) all taxes, assessments and governmental charges levied or
imposed upon it or any subsidiary or upon the income, profits or property of the
Company or any subsidiary and (ii) all lawful claims for labor, materials and
supplies which, if unpaid, might by law become a lien upon the property of the
Company or any subsidiary; provided, however, that the Company shall not be
required to pay or discharge or cause to be paid or discharged any tax,
assessment, charge or claim whose amount, applicability is being contested in
good faith. (Section 1009).
Provision of Financial Information. Whether or not the Company is subject
to Section 13 or 15(d) of the Exchange Act, the Company will, to the extent
permitted under the Exchange Act, file with the Commission the annual reports,
quarterly reports and other documents which the Company would have been required
to file with the Commission pursuant to such Section 13 or 15(d) (the "Financial
Statements") if the Company were so subject, such documents to be filed with the
Commission on or prior to the respective dates (the "Required Filing Dates") by
which the Company would have been required so to file such documents if the
Company were so subject. The Company will also in any event (x) file with the
Trustee copies of the annual reports, quarterly reports and other documents
which the Company would have been required to file with the Commission pursuant
to Section 13 or 15(d) of the Exchange Act if the Company were subject to such
Sections and (y) if filing such documents by the Company with the Commission is
not permitted under the Exchange Act, promptly upon written request and payment
of the reasonable cost of duplication and delivery, supply copies of such
documents to any prospective Holder (Section 1005).
Additional Covenants. Reference is made to the applicable Prospectus
Supplement for information with respect to any additional covenants specific to
a particular series of Debt Securities.
EVENTS OF DEFAULT, NOTICE AND WAIVER
Unless otherwise provided in the Prospectus Supplement, the Indenture
provides that the following events are "Events of Default" with respect to any
series of Debt Securities issued thereunder: (a) default for 30 days in the
payment of any interest on any Debt Security of such series; (b) default in the
payment of any principal of (or premium, if any on) any Debt Security of such
series when due; (c) default in making any sinking fund payment as required for
any Debt Security of such series; (d) default in the performance of any other
covenant or warranty of the Company contained in the Indenture with respect to
any Debt Security of such series, continued for 60 days after written notice as
provided in the Indenture; (e) default in the payment of indebtedness of the
Company outstanding in an aggregate principal amount in excess of $5,000,000 or
any mortgage, indenture, note, bond, capitalized lease or other instrument under
which such indebtedness is issued or by which such indebtedness is secured, such
default having continued after the expiration of any applicable grace period and
having resulted in the acceleration of the maturity of such indebtedness; (f)
certain events of bankruptcy, insolvency or reorganization, or court appointment
of a receiver, liquidator or trustee of the Company or any Significant
Subsidiary or the property of either, (g) the acquisition by any Person
(including any affiliates of such Person) of 20% or more of the Company's Common
Stock, unless the Company's Board of Directors shall have first approved of such
acquisition; and (h) any other Event of Default provided with respect to a
particular series of Debt Securities (Section 501). The term "Significant
Subsidiary" means each significant subsidiary (as defined in Regulation S-X
promulgated under the Securities Act) of the Company. (Section 101).
If an Event of Default under the Indenture with respect to Debt Securities
of any series at the time Outstanding occurs and is continuing, then in every
such case the Trustee or the Holders of not less than 25% in principal amount of
the Outstanding Debt Securities of that series may declare the principal amount
(or, if the Debt Securities of that series are Original Issue Discount
Securities or Indexed Securities, such portion of the principal amount as may be
specified in the terms thereof) of all of the Debt Securities of that series to
be due and payable immediately by written notice thereof to the Company (and to
the Trustee if given by the Holders). However, any time after such a declaration
of acceleration with respect to Debt Securities of such series has been made,
but before a judgment or decree for payment of the money due has been obtained
by the Trustee, the Holders of not less then a majority in principal amount of
Outstanding Debt Securities of such series may rescind and annul such
declaration and its consequences if (a) the Company shall have paid or
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deposited with the Trustee all required payments of the principal of (and
premium, if any) and interest on the Debt Securities of such series plus certain
fees, expenses, disbursements and advances of the Trustee and (b) all Events of
Default, other than the nonpayment of accelerated principal or interest with
respect to Debt Securities of such series have been cured or waived as provided
in the Indenture (Section 502). The Indenture also provides that the Holders of
not less than a majority in principal amount of the Outstanding Debt Securities
of any series may waive any past default with respect to such series and its
consequences, except a default (x) in the payment of the principal of (or
premium, if any) or interest on any Debt Security of such series or (y) in
respect of a covenant or provision contained in the Indenture that cannot be
modified or amended without the consent of the Holder of each Outstanding Debt
Security affected thereby (Section 513).
The Trustee is required to give notice to the Holders of Debt Securities
within 90 days of a default under the Indenture; provided, however, that the
Trustee may withhold notice to the Holders of any series of Debt Securities of
any default with respect to such series (except a default in the payment of the
principal of (or premium, if any) or interest on any Debt Security of such
series or in the payment of any sinking fund installment in respect of any Debt
Security of such series) if the Responsible Officers of the Trustee consider
such withholding to be in the interest of such Holders (Section 601).
The Indenture provides that no Holders of Debt Securities of any series may
institute any proceedings, judicial or otherwise, with respect to the Indenture
or for any remedy thereunder, except in the case of failure of the Trustee, for
60 days, to act after it has received a written request to institute proceedings
in respect of an Event of Default from the Holders of not less than 25% in
principal amount of the Outstanding Debt Securities of that series, as well as
an offer of reasonable indemnity (Section 507). This provision will not prevent,
however, any Holder of Debt Securities from instituting suit for the enforcement
of payment of the principal of (and premium, if any) and interest on such Debt
Securities at the respective due date thereof (Section 508).
Subject to provisions in the Indenture relating to its duties in case of
default, the Trustee is under no obligation to exercise any of its rights or
powers under the Indenture at the request or direction of any Holders of Debt
Securities of any series then Outstanding under the Indenture, unless such
Holders shall have offered to the Trustee reasonable security or indemnity
(Section 602). The Holders of not less than a majority in principal amount of
the Outstanding Debt Securities of any series shall have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee, or of exercising any trust or power conferred upon the Trustee.
However, the Trustee may refuse to follow any direction which is in conflict
with any law or the Indenture, which may involve the Trustee in personal
liability or which may be unduly prejudicial to the Holders of Debt Securities
of such series not joining therein (Section 512).
Within 120 days after the close of each fiscal year, the Company must
deliver to the Trustee a certificate, signed by one of several specified
officers, stating whether or not such officer has knowledge of any default under
the Indenture and, if so, specifying each such default and the nature and status
thereof (Section 1006).
MODIFICATION OF THE INDENTURE
Modifications and amendments of provisions of the Indenture applicable to
any series may be made only with consent of the Holders of not less than a
majority in principal amount of all Outstanding Debt Securities which are
affected by such modification or amendment; provided, however, that no such
modification or amendment may, without the consent of the Holder of each such
Debt Security affected thereby, (a) change the Stated Maturity of the principal
of, or any installment of interest (or premium, if any) on, any such Debt
Security; (b) reduce the principal amount of, or the rate or amount of interest
on, or any premium payable on redemption of, any such Debt Security, or reduce
the amount of principal of an Original Issue Discount Security that would be due
and payable upon declaration of acceleration of the maturity thereof or would be
provable in bankruptcy, or adversely affect any right of repayment of the Holder
of any such Debt Security; (c) change the Place of Payment, or the coin or
currency, for payment of principal of, premium, if any, or interest on any such
Debt Security; (d) impair the right to institute suit for the enforcement of any
payment on or with respect to any such Debt Security on or after the Stated
Maturity thereof; (e) reduce the above-
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stated percentage of Outstanding Debt Securities of any series necessary to
modify or amend the Indenture, to waive compliance certain provisions thereof or
certain defaults and consequences thereunder or to reduce the quorum or voting
requirements set forth in the Indenture; or (f) modify any of the foregoing
provisions or any of the provisions relating to the waiver of certain past
defaults or certain covenants, except to increase the required percentage to
effect such action or to provide that certain other provisions may not be
modified or waived without the consent of the Holder of such Debt Security
(Section 902).
The Holders of not less than a majority in principal amount of Outstanding
Debt Securities of a particular series have the right to waive compliance by the
Company with certain covenants in the Indenture relating to such series (Section
1011).
Modifications and amendments of the Indenture may be made by the Company
and the Trustee without the consent of any Holder of Debt Securities for any of
the following purposes: (i) to evidence the succession of another Person to the
Company as obligor under the Indenture; (ii) to add to the covenants of the
Company for the benefit of the Holders of all or any series of Debt Securities
or to surrender any right or power conferred upon the Company in the Indenture;
(iii) to add Events of Default for the benefit of the Holders of all or any
series of Debt Securities; (iv) to add or change any provisions of the Indenture
to facilitate the issuance of Debt Securities in bearer form, or to permit or
facilitate the issuance of Debt Securities in uncertificated form, provided that
such action shall not adversely affect the interests of the Holders of the Debt
Securities of any series in any material respect; (v) to change or eliminate any
provisions of the Indenture, provided that any such change or elimination shall
become effective only when there are not Debt Securities Outstanding of any
series created prior thereto which are entitled to the benefit of such
provision; (vi) to secure the Debt Securities; (vii) to establish the form or
terms of Debt Securities of any series, including the provision and procedures,
if applicable, or the conversion of such Debt Securities into Common Stock or
Preferred Stock; (viii) to provide for the acceptance of appointment by a
successor Trustee or facilitate the administration of the trust under the
Indenture by more than one Trustee; (ix) to cure any ambiguity, defect or
inconsistency in the Indenture, provided that such action shall not adversely
affect the interests of Holders of Debt Securities of any series in any material
respect; (x) to supplement any of the provisions of the Indenture to the extent
necessary to permit or facilitate defeasance and discharge of any series of such
Debt Securities, provided that such action shall not adversely affect the
interests of the Holders of the Debt Securities of any series in any material
respect (Section 901).
The Indenture provides that in determining whether the Holders of the
requisite principal amount of Outstanding Debt Securities of a series have given
any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of Holders of Debt
Securities, (i) the principal amount of an Original Issue Discount Security that
shall be deemed to be outstanding shall be the amount of the principal thereof
that would be due and payable as of the date of such determination upon
declaration of acceleration of the maturity thereof, (ii) the principal amount
of a Debt Security denominated in a Foreign Currency that shall be deemed
outstanding shall be the U.S. dollar equivalent, determined on the issue date
for such Debt Security, of the principal amount (or, in the case of an Original
Issue Discount Security, the U.S. dollar equivalent on the issue date of such
Debt Security of the amount determined as provided in (i) above), (iii) the
principal amount of an Indexed Security that shall be deemed outstanding shall
be the principal face amount of such Indexed Security at original issuance,
unless otherwise provided with respect to such Indexed Security pursuant to
Section 301 of the Indenture, and (iv) Debt Securities owned by the Company or
any other obligor upon the Debt Securities or any Affiliate of the Company or of
such other obligor shall be disregarded (Section 101).
The Indenture contains provisions for convening meetings of the Holders of
Debt Securities of a series (Section 1501). A meeting may be called at any time
by the Trustee, and also, upon request, by the Company or the Holders of at
least 10% in principal amount of the Outstanding Debt Securities of such series,
in any such case upon notice given as provided in the Indenture (Section 1502).
Except for any consent that must be given by the Holder of each Debt Security
affected by certain modifications and amendments of the Indenture, any
resolution presented at a meeting or adjourned meeting duly reconvened at which
a quorum is present may be adopted by the affirmative vote of the Holders of a
majority in principal amount of the Outstanding Debt Securities of that series;
provided, however, that, except as referred to above, any resolution
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with respect to any request, demand, authorization, direction, notice, consent,
waiver or other action that may be made, given or taken by the Holders of a
specified percentage, which is less than a majority, in principal amount of the
Outstanding Debt Securities of a series may be adopted at a meeting or adjourned
meeting duly reconvened at which a quorum is present by the affirmative vote of
the Holders of such Debt Securities of that series. Any resolution passed or
decision taken at any meeting of Holders of Debt Securities of any series duly
held in accordance with the Indenture will be binding on all Holders of Debt
Securities of that series. The quorum at any meeting called to adopt a
resolution, and at any reconvened meeting, will be Persons holding or
representing a majority in principal amount of the Outstanding Debt Securities
of a series; provided, however, that if any action is to be taken at such
meeting with respect to a consent or waiver which may be given by the Holders of
not less than a specified percentage in principal amount of the Outstanding Debt
Securities of a series, the Persons holding or representing such specified
percentage in principal amount of the Outstanding Debt Securities of such series
will constitute a quorum (Section 1504).
Notwithstanding the foregoing provisions, if any action is to be taken at a
meeting of Holders of Debt Securities of any series with respect to any request,
demand, authorization, direction, notice, consent, waiver or other action that
the Indenture expressly provides may be made, given or taken by the Holders of a
specified percentage in principal amount of all Outstanding Debt Securities
affected thereby, or of the Holders of such series and one or more additional
series: (i) there shall be no minimum quorum requirement for such meeting and
(ii) the principal amount of the Outstanding Debt Securities of such series that
vote in favor of such request, demand, authorization, direction, notice,
consent, waiver or other action shall be taken into account in determining
whether such request, demand, authorization, direction, notice, consent, waiver
or other action has been made, given or taken under the Indenture (Section
1504).
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
Unless otherwise provided in the Prospectus Supplement, the Company may
discharge certain obligations to Holders of any series of Debt Securities that
have not already been delivered to the Trustee for cancellation and that either
have become due and payable or will become due and payable within one year (or
are scheduled for redemption within one year) by irrevocably depositing with the
Trustee, in trust, funds in such currency or currencies, currency unit or units
or composite currency or currencies in which such Debt Securities are payable in
an amount sufficient to pay the entire indebtedness on such Debt Securities in
respect of principal (and premium, if any) and interest to the date of such
deposit (if such Debt Securities have become due and payable) or to the Stated
Maturity or Redemption Date, as the case may be (Section 401).
The Indenture provides that, unless otherwise provided in the Prospectus
Supplement, if the provisions of Article Fourteen are made applicable to the
Debt Securities of any series pursuant to Section 301 of the Indenture, the
Company may elect either (a) to defease and be discharged from any and all
obligations with respect to such Debt Securities (except for the obligation to
pay Additional Amounts, if any, upon the occurrence of certain events of tax,
assessment or governmental charge with respect to payments on such Debt
Securities and the obligations to register the transfer or exchange of such Debt
Securities, to replace temporary or mutilated, destroyed, lost or stolen Debt
Securities, to maintain an office or agency in respect of such Debt Securities
and to hold moneys for payment in trust) ("defeasance") (Section 1402) or (b) to
be released from its obligations with respect to such Debt Securities under
Sections 1004 and 1005, inclusive, of the Indenture (being the restrictions
described under "Certain Covenants") or, if provided pursuant to Section 301 of
the Indenture, its obligations with respect to any other covenant, and any
omission to comply with such obligations shall not constitute a default or an
Event of Default with respect to such Debt Securities ("covenant defeasance")
(Section 1403), in either case upon the irrevocable deposit by the Company with
the Trustee, in trust, of any amount, in such currency or currencies, currency
unit or units or composite currency or currencies in which such Debt Securities
are payable at Stated Maturity, or Government Obligations (as defined below), or
both applicable to such Debt Securities which through the scheduled payment of
principal and interest in accordance with their terms will provide money in an
amount sufficient to pay the principal of (and premium, if any) and interest on
such Debt Securities, and any mandatory sinking fund or analogous payments
thereon, on the scheduled due dates therefor.
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Such a trust may only be established if, among other things, the Company
has delivered to the Trustee an Opinion of Counsel (as specified in the
Indenture) to the effect that the Holders of such Debt Securities will not
recognize income, gain or loss for U.S. Federal income tax purposes as a result
of such defeasance or covenant defeasance and will be subject to U.S. Federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such defeasance or covenant defeasance had not
occurred, and such Opinion of Counsel, in the case of defeasance, must refer to
and be based upon a ruling of the Internal Revenue Service or a change in
applicable United States federal income tax law occurring after the date of the
Indenture (Section 1404).
"Government Obligations" means securities which are (i) direct obligations
of the United States of America or the government which issued the Foreign
Currency in which the Debt Securities of a particular series are payable, for
the payment of which its full faith and credit is pledged or (ii) obligations of
a Person controlled or supervised by and acting as an agency or instrumentality
of the United States of America or such government which issued the Foreign
Currency in which the Debt Securities of such series are payable, the payment of
which is unconditionally guaranteed as a full faith and credit obligation by the
United States of America or such other government, which, in either case, are
not callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank or trust company as custodian with
respect to any such Government Obligation or a specific payment of interest on
or principal of any such Government Obligation held by such custodian for the
account of the holder of a depository receipt, provided that (except as required
by law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received by the
custodian in respect of the Government Obligation or the specific payment of
interest on or principal of the Government Obligation evidenced by such
depository receipt (Section 101).
Unless otherwise provided in the applicable Prospectus Supplement, if after
the Company has deposited funds and/or Government Obligations to effect
defeasance or covenant defeasance with respect to Debt Securities of any series,
(a) the Holder of a Debt Security of such series is entitled to, and does, elect
pursuant to Section 301 of the Indenture or the terms of such Debt Security to
receive payment in a currency, currency unit or composite currency other than
that in which such deposit has been made in respect of such Debt Security, or
(b) a Conversion Event (as defined below) occurs in respect of the currency,
currency unit or composite currency in which such deposit has been made, the
indebtedness represented by such Debt Security shall be deemed to have been, and
will be, fully discharged and satisfied through the payment of the principal of
(and premium, if any) and interest on such Debt Security as they become due out
of the proceeds yielded by converting the amount so deposited in respect of such
Debt Security into the currency, currency unit or composite currency in which
such Debt Security becomes payable as a result of such election or such
cessation of usage based on the applicable market exchange rate (Section 1405).
"Conversion Event" means the cessation of use of (i) a currency, currency unit
or composite currency both by the government of the country which issued such
currency and for the settlement of transactions by a central bank or other
public institutions or within the international banking community, (ii) the ECU
both within the European Monetary System and for the settlement of transactions
by public institutions of or within the European Communities or (iii) any
currency unit or composite currency other than the ECU for the purposes for
which it was established. (Section 101.) Unless otherwise provided in the
applicable Prospectus Supplement, all payments of principal of (and premium, if
any) and interest on any Debt Security that is payable in a Foreign Currency
that cease to be used by its government of issuance shall be made in U.S.
dollars.
In the event the Company effects covenant defeasance with respect to any
Debt Securities and such Debt Securities are declared due and payable because of
the occurrence of any Event of Default other than the Event of Default described
in clause (d) under "Events of Default, Notice and Waiver" with respect to
Sections 1004 and 1005, inclusive, of the Indenture (which Sections would no
longer be applicable to such Debt Securities) or described in clause (h) under
"Events of Default, Notice and Waiver" with respect to any other covenant as to
which there has been covenant defeasance, the amount in such currency, currency
unit or composite currency in which such Debt Securities are payable, and
Government Obligations on deposit with the Trustee, will be sufficient to pay
amounts due on such Debt Securities at the time of their Stated Maturity but may
not be sufficient to pay amounts due on such Debt Securities at the time of the
acceleration resulting
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from such Event of Default. However, the Company would remain liable to make
payment of such amounts due at the time of acceleration.
The applicable Prospectus Supplement may further describe the provisions,
if any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Debt
Securities of a particular series.
CONVERSION RIGHTS
The terms and conditions, if any, upon which the Debt Securities are
convertible into Common Stock or Preferred Stock will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include
whether such Debt Securities are convertible into Common Stock or Preferred
Stock, the conversion price (or manner of calculation thereof), the conversion
period, provisions as to whether conversion will be at the option of the Holders
of the Company, the events requiring an adjustment of the conversion price and
provisions affecting conversion in the event of the redemption of such Debt
Securities and any restriction on conversion, including restrictions directed at
maintaining the Company's REIT status.
SUBORDINATION
The terms and conditions, if any, upon which the Debt Securities are
subordinated to other indebtedness of the Company will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include a
description of the indebtedness ranking senior to the Debt Securities, the
restrictions on payments to the Holders of such Debt Securities while a default
with respect to such senior indebtedness in continuing, the restrictions, if
any, on payments to the Holders of such Debt Securities following an Event of
Default, and provisions requiring Holders of such Debt Securities to remit
certain payments to holders of senior indebtedness.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more global securities (the "Global Securities") that will be
deposited with, or on behalf of, a depositary (the "Depositary") identified in
the applicable Prospectus Supplement relating to such series, Global Securities
may be issued in either registered or bearer form and in either temporary or
permanent form. The specific terms of the depositary arrangement with respect to
a series of Debt Securities will be described in the applicable Prospectus
Supplement relating to such series.
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DESCRIPTION OF STOCK
The summary of the terms of the stock of the Company set forth below does
not purport to be complete and is subject to and qualified in its entirety by
reference to the charter and bylaws of the Company. See "Available Information."
GENERAL
The total number of shares of stock which the Company is authorized to
issue is twenty-seven million (27,000,000) shares, of which two million
(2,000,000) is Preferred Stock, $0.01 par value per share, and twenty-five
million (25,000,000) is Common Shares, $0.01 par value per share.
The Common Shares may be issued from time to time in one or more series.
The Board of Directors is authorized to fix the number of any series of Common
Shares and to determine the designation of any such series. The Board of
Directors is also authorized to determine or alter the rights granted to or
imposed upon any wholly unissued series of Common Shares, including the dividend
rights, dividend rate, conversion rights, voting rights, and the liquidation
preference, and, within the limits and restrictions stated in any resolution or
resolutions of the Board of Directors originally fixing the number of shares
constituting any series, to increase or decrease (but not below the number of
shares then outstanding) the number of shares of any such series subsequent to
the issue of shares of that series. In case the number of shares of any series
shall be so decreased, the shares constituting such decrease shall resume the
status which they had prior to the adoption of the resolution originally fixing
the number of shares of such series. Notwithstanding the foregoing, however, in
no event shall the Common Shares be redeemable, except in connection with the
redemption provisions of Article IX of the Company's Articles of Incorporation,
as amended to date (the "Charter").
Under the Charter, the first series of Common Shares has been designated as
"Series A Common Stock," and consists of forty-four thousand nine hundred
eighty-six (44,986) shares. The second series of Common Shares has been
designated "Common Stock" and consists of ten million (10,000,000) shares. As of
June 30, 1995, there were 8,235,957 shares of Common Stock issued and
outstanding, and 44,751 shares of Series A Common Stock issued and outstanding.
Up to 472,000 and 100,000 shares of Common Stock have been reserved for issuance
under the Company's 1993 Stock Option Plan and pursuant to stock option
agreements that the Company has entered into with certain of its officers,
respectively.
COMMON STOCK AND SERIES A COMMON STOCK
The Company may from time to time offer shares of Common Stock at prices
and on terms to be set forth in a supplement to this Prospectus. This Prospectus
relates exclusively to shares of Common Stock and not to shares of Series A
Common Stock.
The holders of the Common Stock are entitled to participate in
distributions when and as authorized and declared by the Board of Directors,
provided that the holders of the Common Stock shall be entitled to receive an
annualized quarterly per share dividend equal to 105% of the annualized
quarterly per share dividend on the Series A Common Stock. The Company currently
pays regular quarterly dividends to holders of Common Stock and Series A Common
Stock. Holders of the Common Stock and Series A Common Stock are entitled to one
vote per share of Common Stock and Series A Common Stock on all matters
submitted to a vote of the stockholders of the Company. In voting for directors,
a stockholder of the Company is entitled to cumulate votes if such stockholder
gives notice, prior to commencement of the voting, of an intention to do so. If
any one stockholder has given such notice, then all stockholders entitled to
vote may cumulate votes.
In the event of a liquidation, dissolution or winding up of the Company,
the holders of Common Stock are entitled to receive ratably with the other
holders of the Common Shares the assets remaining after satisfaction of all
liabilities and payment of liquidation preferences and accrued dividends, if
any, on any other class or series of stock that has a liquidation preference.
The rights of holders of Common Stock are subject to the rights and preferences
established by the Board of Directors for any stock that may subsequently be
issued by the Company.
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All shares of Common Stock being offered hereby will, when issued, be fully
paid and nonassessable. Holders of the Common Stock and Series A Common Stock
currently issued and outstanding and holders of the shares of Common Stock
offered hereby do not have any preference, conversion, exchange or preemptive
rights. Shares of Common Stock that are already issued and outstanding will not
be offered pursuant to this Prospectus.
Any shares of Common Stock sold in an offering will be freely tradeable
without restriction or registration under the Securities Act of 1933, as amended
(the "Securities Act"), unless acquired by an affiliate of the Company, subject
to the restrictions on transfer set forth below. Shares of Common Stock held by
affiliates or acquired in transactions not registered in reliance on the private
offering exemption under the Securities Act cannot be resold unless registered
under the Securities Act or sold pursuant to an exemption from registration,
such as Rule 144 promulgated under the Securities Act.
The transfer agent and registrar for the Company's Common Stock is First
Interstate Bank of California, Los Angeles, California.
The Company's Common Stock is currently traded on the New York Stock
Exchange under the symbol "RET." The Series A Common Stock is not currently
listed on any exchange. Prior to December 31, 1994, the Series A Common Stock
was traded on the Nasdaq National Market.
PREFERRED STOCK
The Company may from time to time offer shares of Preferred Stock at prices
and terms to be set forth in a supplement to this Prospectus. No shares of the
Company's Preferred Stock are presently issued and outstanding.
The Preferred Stock may be issued from time to time in one or more series.
The Board of Directors is authorized to fix the number of shares of any series
of Preferred Stock and to determine the designation of any such series. The
Board of Directors is also authorized to determine or alter the rights granted
to or imposed upon any wholly unissued series of Preferred Stock including the
dividend rights, dividend rate, conversion rights, voting rights, and the
liquidation preference, and, within the limits and restrictions stated in any
resolution or resolutions of the Board of Directors originally fixing the number
of shares constituting any series, to increase or decrease (but not below the
number of shares then outstanding) the number of shares of any such series
subsequent to the issue of shares of that series. In case the number of shares
of any series shall be so decreased, the shares constituting such decrease shall
resume the status which they had prior to the adoption of the resolution
originally fixing the number of shares of such series. Notwithstanding the
foregoing, however, in no event shall the Preferred Stock be redeemable, except
in connection with the redemption provisions of Article IX of the Charter. The
issuance of Preferred Stock may have the effect of delaying, deferring or
preventing a change in control of the Company.
Preferred Stock, upon issuance against full payment of the purchase price
therefor, will be fully paid and nonassessable. The specific terms of a
particular series of Preferred Stock will be described in the Prospectus
Supplement relating to that series, including a Prospectus Supplement providing
that Preferred Stock may be issuable upon the exercise of Warrants issued by the
Company. The description of Preferred Stock set forth below and the description
of the terms of a particular series of Preferred Stock set forth in a Prospectus
Supplement do not purport to be complete and are qualified in their entirety by
reference to the articles supplementary relating to that series.
The rights, preferences, privileges and restrictions of the Preferred Stock
of each series will be fixed by the articles supplementary relating to such
series. A Prospectus Supplement, relating to each series, will specify the terms
of the Preferred Stock as follows:
(1) the title and stated value of such Preferred Stock;
(2) the number of shares of such Preferred Stock offered, the liquidation
preference per share and the offering price of such Preferred Stock;
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(3) the dividend rate(s), period(s), and/or payment date(s) or method(s)
of calculation thereof applicable to such Preferred Stock;
(4) whether such Preferred Stock is cumulative or not and, if cumulative,
the date from which dividends on such Preferred Stock shall
accumulate;
(5) the procedures for any auction and remarketing, if any, for such
Preferred Stock;
(6) the provision for a sinking fund, if any, for such Preferred Stock;
(7) the provision for redemption, if applicable, of such Preferred Stock;
(8) any listing of such Preferred Stock on any securities exchange;
(9) the terms and conditions, if applicable, upon which such Preferred
Stock will be converted into Common Stock of the Company, including
the conversion price (or manner of calculation thereof);
(10) a discussion of any material federal income tax considerations
applicable to such Preferred Stock;
(11) any limitations on direct or beneficial ownership and restrictions on
transfer, in each case as may be appropriate to preserve the status of
the Company as a REIT;
(12) the relative ranking and preferences of such Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up
of the affairs of the Company;
(13) any limitations on issuance of any class or series of preferred stock
ranking senior to or on a parity with such series of Preferred Stock
as to dividend rights and rights upon liquidation, dissolution or
winding up of the affairs of the Company;
(14) any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Stock; and
(15) any voting rights of such Preferred Stock.
Unless otherwise specified in the Prospectus Supplement, the Preferred
Stock will, with respect to dividend rights and rights upon liquidation,
dissolution or winding up of the Company, rank (i) senior to all series of
Common Shares of the Company, and to all equity securities ranking junior to
such Preferred Stock with respect to dividend rights or rights upon liquidation,
dissolution or winding up of the Company; (ii) on a parity with all equity
securities issued by the Company the terms of which specifically provide that
such equity securities rank on a parity with the Preferred Stock with respect to
dividends rights or rights upon liquidation, dissolution or winding up of the
Company; and (iii) junior to all equity securities issued by the Company the
terms of which specifically provide that such equity securities rank senior to
the Preferred Stock with respect to dividend rights or rights upon liquidation,
dissolution or winding up of the Company.
The terms and conditions, if any, upon which shares of a series of
Preferred Stock are convertible into Common Stock will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include the
number of shares of Common Stock into which the Preferred Stock is convertible,
the conversion price (or manner of calculation thereof), the conversion period,
provisions as to whether conversion will be at the option of the holders of the
Preferred Stock or the Company, the events requiring an adjustment of the
conversion price and provisions affecting conversion in the event of the
redemption of such Preferred Stock.
RESTRICTIONS ON TRANSFER
For the Company to qualify as a REIT under the Code in any taxable year,
not more than 50% of its outstanding equity securities may be owned directly or
indirectly by five or fewer individuals, and its equity securities must be owned
by 100 or more persons during at least 335 days of a taxable year of 12 months
or during a proportionate part of a shorter taxable year (except the first
year). In order to ensure that the Company will meet these requirements, the
Board of Directors has the power to redeem or prohibit the transfer of a
sufficient number of shares of stock, selected in a manner deemed appropriate,
to maintain or bring the ownership of shares into conformity with such
requirements. In connection with the foregoing, if the Board of Directors shall,
at any time and in good faith, be of the opinion that (i) direct or indirect
ownership
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of more than 9.8% in value of the outstanding shares of stock of the Company has
or may become concentrated in the hands of one beneficial owner (including any
"group," as that term is used in Section 13(d) of the Exchange Act) or (ii)
direct or indirect ownership of the outstanding shares of stock has or may
result in the Company's shares being held by less than 100 persons (either
occurrence, a "Disqualifying Event"), the Board of Directors has the power (a)
to redeem from any stockholders of the Company a number of shares of stock
sufficient, in the opinion of the Board, to maintain or bring the direct or
indirect ownership of shares of such owner to a level or not more than 9.8% in
value of the outstanding shares of stock of the Company and (b) to refuse to
transfer or issue shares of stock of the Company to any person whose acquisition
of such shares, in the opinion of the Board of Directors, would cause a
Disqualifying Event. Notice of such action by the Board of Directors shall be
sent to each person whose shares of stock of the Company shall be redeemed or
whose transfer or receipt of shares of stock of the Company shall be refused
specifying the date of each redemption (if applicable) and the number of shares
as affected. The purchase price for any shares of stock of the Company so
redeemed shall be equal to the fair market value of such shares reflected in the
closing sales price for the shares, if then listed on a national securities
exchange or the Nasdaq National Market, or, if the shares are not then listed on
a national securities exchange or the Nasdaq National Market, the closing bid
quotation for the shares on the Nasdaq Automated Quotations System or any
similar system then in use, or, if such quotation is not available, the fair
market value as determined by the Board of Directors in good faith, on the last
business day immediately preceding the day on which a notice of such redemption
is sent by the Board of Directors. The Common Stock is presently listed on the
New York Stock Exchange. From and after the date fixed for purchase by the
Board, the holder of any shares of stock so called for purchase shall cease to
be entitled to distributions, voting rights and other benefits with respect to
such shares except the right to payment of the purchase price for the shares.
Further, any transfer of shares of stock that would cause a Disqualifying
Event shall be deemed void, in accordance with the Charter. If such provision is
deemed invalid, any shares of stock whose transfer would cause a Disqualifying
Event shall be deemed transferred by operation of law to the Company as trustee
of a trust for the benefit of those persons to whom the shares can ultimately be
transferred without causing a Disqualifying Event. Shares held in trust shall
cease to be entitled to distribution, voting rights and other benefits with
respect to such shares (except for the right to payment for transfer as
described below) during the time that they are held in trust. Shares held in
trust may be transferred by the person whose attempted transfer would have
caused a Disqualifying Event, at a price not in excess of the price paid by that
person for the shares. Upon such a transfer, the trustees shall distribute the
shares held in trust to the transferee, provided that such shares in the hands
of such transferee would not cause a Disqualifying Event. The foregoing
provisions of the Charter may have certain anti-takeover effects. Although the
provisions do not apply to a cash tender for all of the outstanding shares of
the Company, the provisions do impair the ability of any person to accumulate a
controlling portion of the Company's shares or conduct a proxy contest.
CERTAIN PROVISIONS OF MARYLAND LAW
Certain sections of the Maryland General Corporation Law ("MGCL") contain
provisions which may tend to impede or delay a takeover of the Company. Section
3-602 of the MGCL prevents a Maryland corporation from engaging in any "Business
Combination" (defined to include a variety of transactions, including mergers,
as set forth below) with an "Interested Stockholder" (generally defined as a
beneficial owner of 10% or more of a corporation's voting power) for five years
following the date such person became an Interested Stockholder unless, among
other exceptions, (i) before such person becomes an Interested Stockholder, the
board of directors of the corporation exempted or approved the business
combinations; or (ii) the Interested Stockholder became an Interested
Stockholder at any time in the prior five years solely through inadvertence, and
the Interested Stockholder divests itself of a sufficient amount of the
corporation's voting stock so that it no longer is the beneficial owner of 10%
of more of the corporation's voting stock.
Unless exempted by the statute, in addition to any vote otherwise required,
a Business Combination with an Interested Stockholder that is not prohibited by
the provisions of Section 3-602 must be recommended by the board of directors
and approved by the affirmative vote of at least 80% of the voting stock of the
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corporation, and must also be approved by two-thirds of the voting stock,
excluding voting stock held by the Interested Stockholder who will be a party to
the Business Combination or by an affiliate or associate thereof.
A corporation may elect not to be governed by Section 3-602 if the
stockholders adopt an amendment to the corporation's charter by a vote of at
least 80% of the voting stock of the corporation, and two-thirds of the votes
entitled to be cast by persons who are not Interested Stockholders of the
corporation or affiliates or associates thereof. Such an amendment, however,
shall not be effective until 18 months after the vote of stockholders and may
not apply to any Business Combination of the corporation with an Interested
Stockholder who became an Interested Stockholder on or before the date of the
vote.
The MGCL provides that during such five-year period the corporation and
certain of its subsidiaries may not merge, consolidate, or undertake a share
exchange with an Interested Stockholder or any affiliate of the Interested
Stockholder, unless the merger, consolidation or share exchange does not alter
the contract rights of the stock or change or convert outstanding shares of
stock of the corporation or its subsidiaries. In addition, the corporation and
certain of its subsidiaries may not engage in certain other transactions with an
Interested Stockholder or any affiliate thereof.
In addition to the provisions of Section 3-602 and related Sections, the
MGCL also contains provisions which may have certain anti-takeover effects
through the restriction of voting rights of Control Shares. Section 3-702
provides that Control Shares of a Maryland corporation (defined as shares of
stock in respect of which an Acquiring Person (as defined in Section 3-701 of
the MGCL) is entitled to direct the exercise of voting power in electing
directors within one of the following ranges, (i) one-fifth or more but less
than one-third, (ii) one-third or more but less than a majority or (iii) a
majority or more of all voting power, and for which such voting power approval
has not been previously obtained) acquired in a Control Share Acquisition have
no voting rights except to the extent approved by two-thirds of all the votes
entitled to be cast on the matter, excluding all shares in respect of which an
Acquiring Person, an officer of the corporation, or an employee of the
corporation who is also a director of the corporation is entitled to exercise or
direct the exercise of voting power in the election of directors. An Acquiring
Person is defined as a person who makes or proposes to make a Control Share
Acquisition.
The MGCL defines a Control Share Acquisition as the acquisition of
ownership of, or the power to direct the exercise of voting power with respect
to, issued and outstanding Control Shares. A Control Share Acquisition does not
include the acquisition of shares, among other instances, (i) under the laws of
descent and distribution, (ii) under the satisfaction of a pledge or other
security interest created in good faith and not for the purpose of circumventing
the Control Share provisions of the MGCL, (iii) under a merger, consolidation or
share exchange with the corporation which meets certain requirements, or (iv)
under an acquisition of voting power within a range previously authorized by the
stockholders and made in good faith and not for the purpose of circumventing the
Control Share provisions of the MGCL.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Directors have a fiduciary relationship to the stockholders. The Charter
provides that the personal liability of a director for monetary damages for
breach of fiduciary duty as a director shall be eliminated to the fullest extent
permissible under law. The MGCL permits a Maryland corporation to include in its
charter a provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages except for liability
resulting from (a) actual receipt of an improper benefit or profit in money,
property or services or (b) active and deliberate dishonesty established by a
final judgment as being material to the cause of action. The Charter contains
such a provision which eliminates such liability to the maximum extent permitted
by the MGCL. The Charter and Bylaws contain provisions which permit the Company
to indemnify its officers and directors to the extent permitted by Maryland law
and the Company has entered into indemnification agreements with its officers
and directors. The MGCL permits a corporation to indemnify its present and
former directors and officers, among others, against judgments, penalties,
fines, settlements and reasonable expenses actually incurred by them in
connection with any proceeding to which they may be made a party by reason of
their service in those or other capacities unless it is established that (a) the
act or omission of the director or officer was material to the matter giving
rise to the proceeding and (i) was
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committed in bad faith or (ii) was the result of active and deliberate
dishonesty, (b) the director or officer actually received an improper personal
benefit in money, property or services or (c) in the case of any criminal
proceeding, the director or officer had reasonable cause to believe that the act
or omission was unlawful. Such indemnification also may be subject to certain
limitations where claims under securities laws violations are involved. Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to the Company's directors and officers pursuant to the foregoing
provisions or otherwise, the Company has been advised that, in the opinion of
the Commission, such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable. In addition,
indemnification may be limited by state securities laws.
DESCRIPTION OF WARRANTS
The Company may issue Warrants for the purchase of Common Stock or
Preferred Stock. The Warrants may be issued independently or together with any
other Offered Securities offered by any Prospectus Supplement and may be
attached to or separate from such Offered Securities. Each series of Warrants
will be issued under a separate warrant agreement (each, a "Warrant Agreement")
to be entered into between the Company and a warrant agent specified in the
applicable Prospectus Supplement (the "Warrant Agent"). The Warrant Agent will
act solely as an agent of the Company in connection with the Warrants of such
series and will not assume any obligation or relationship of agency or trust for
or with any holders or beneficial owners of Warrants. The following sets forth
certain general terms and provisions of the Warrants offered hereby. Further
terms of the Warrants and the applicable Warrant Agreement will be set forth in
the applicable Prospectus Supplement.
The applicable Prospectus Supplement will describe the terms of the
Warrants in respect of which this Prospectus is being delivered, including,
where applicable, the following:
(1) the title of such Warrants;
(2) the aggregate number of such Warrants;
(3) the price or prices at which such Warrants will be issued;
(4) the designation, number and terms of shares of Common Stock or shares
of Preferred Stock purchasable upon exercise of such Warrants;
(5) the designation and terms of the other Offered Securities with which
such Warrants are issued and the number of such Warrants issued with
each such Offered Security;
(6) the date, if any, on and after which such Warrants and the related
Common Stock or Preferred Stock will be separately transferable;
(7) the price at which each share of Common Stock or share of Preferred
Stock purchasable upon exercise of such Warrants may be purchased;
(8) the date on which the right to exercise such Warrants shall commence
and the date on which such right shall expire;
(9) the minimum or maximum amount of such Warrants which may be exercised
at any one time;
(10) information with respect to book-entry procedures, if any;
(11) a discussion of certain Federal income tax considerations; and
(12) any other terms of such Warrants, including terms, procedures and
limitations relating to the exchange and exercise of such Warrants.
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FEDERAL INCOME TAX CONSIDERATIONS
The following summary of material Federal income tax considerations
regarding this Offering is based on current law, is for general information only
and is not tax advice. This discussion does not purport to deal with all aspects
of taxation that may be relevant to particular stockholders in light of their
personal investment or tax circumstances, or to certain types of stockholders
(including insurance companies, tax-exempt organizations, financial institutions
or broker-dealers, foreign corporations and persons who are not citizens or
residents of the United States) subject to special treatment under the Federal
income tax laws.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT HIS/HER OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM/HER OF THE PURCHASE, OWNERSHIP
AND SALE OF THE OFFERED SECURITIES AND OF THE COMPANY'S ELECTION TO BE TAXED AS
A REAL ESTATE INVESTMENT TRUST, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND
OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE AND ELECTION AND OF
POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
TAXATION OF THE COMPANY
General. The Company has elected to be taxed as a REIT, under Sections 856
through 860 of the Code, from the Company's commencement of operations in 1991.
The Company believes that it is organized and operated in such a manner as to
qualify for taxation as a REIT under the Code and the Company intends to
continue to operate in such a manner, but no assurance can be given that it will
operate in a manner so as to remain qualified.
The REIT provisions of the Code are highly technical and complex. The
following sets forth the material aspects of the sections that govern the
Federal income tax treatment of a REIT and its stockholders. This summary is
qualified in its entirety by the applicable Code provisions, rules and
regulations promulgated thereunder, and administrative and judicial
interpretations thereof. Morrison & Foerster has acted as tax counsel to the
Company in connection with this Prospectus, but has not previously represented
the Company in regard to its qualification and election to be taxed as a REIT.
In the opinion of Morrison & Foerster, the Company is organized in
conformity with the requirements for qualification as a REIT, and its method of
operation will enable it to meet the requirements for continued qualification
and taxation as a REIT under the Code. It must be emphasized that this opinion
is based on various assumptions and is conditioned upon certain representations
made by the Company as to factual matters. Such representations are attached to
the opinion. Moreover, such qualification and taxation as a REIT depends upon
the Company's ability to meet, through actual annual operating results,
distribution levels and diversity of stock ownership, the various qualification
tests imposed under the Code discussed below, the results of which will not be
reviewed by Morrison & Foerster. Accordingly, no assurance can be given that the
actual results of the Company's operations for any particular taxable year will
satisfy such requirements.
So long as the Company qualifies for taxation as a REIT, it generally will
not be subject to Federal corporate income taxes on its net income that is
currently distributed to stockholders. This treatment substantially eliminates
the "double taxation" (at the corporate and stockholder levels) that generally
results from investment in a corporation. However, the Company will be subject
to Federal income tax as follows. First, the Company will be taxed at regular
corporate rates on any undistributed real estate investment trust taxable
income, including undistributed net capital gains. Second, under certain
circumstances, the Company may be subject to the "alternative minimum tax" on
its items of tax preference. Third, if the Company has (i) net income from the
sale or other disposition of "foreclosure property" which is held primarily for
sale to customers in the ordinary course of business or (ii) other nonqualifying
income from foreclosure property, it will be subject to tax at the highest
corporate rate on such income. Fourth, if the Company has net income from
prohibited transactions (which are, in general, certain sales or other
dispositions of property held primarily for sale to customers in the ordinary
course of business other than foreclosure property), such income will be subject
to a 100% tax. Fifth, if the Company should fail to satisfy the 75% gross income
test or the 95% gross income test (as discussed below), but has nonetheless
maintained its qualification as a REIT
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because certain other requirements have been met, it will be subject to a 100%
tax on an amount equal to (a) the gross income attributable to the greater of
the amount by which the Company fails the 75% or 95% test multiplied by (b) a
fraction intended to reflect the Company's profitability. Sixth, if the Company
should fail to distribute during each calendar year at least the sum of (i) 85%
of its real estate investment trust ordinary income for such year, (ii) 95% of
its real estate investment trust capital gain net income for such year and (iii)
any undistributed taxable income from prior periods, the Company would be
subject to a 4% excise tax on the excess of such required distribution over the
amounts actually distributed. Seventh, with respect to an asset (a "Built-In
Gain Asset") acquired by the Company from a corporation which is or has been a C
corporation (i.e., generally a corporation subject to full corporate-level tax)
in a transaction in which the basis of the Built-In Gain Asset in the hands of
the Company is determined by reference to the basis of the asset in the hands of
the C corporation, if the Company recognizes gain on the disposition of such
asset during the ten year period (the "Recognition Period") beginning on the
date on which such asset was acquired by the Company, then, to the extent of the
Built-In-Gain (i.e., the excess of (a) the fair market value of such asset over
(b) the Company's adjusted basis in such asset, determined as of the beginning
of the Recognition Period), such gain will be subject to tax at the highest
regular corporate tax pursuant to Internal Revenue Service ("IRS") regulations
that have not yet been promulgated. The results described above with respect to
the recognition of Built-In Gain assume that the Company will make an election
pursuant to IRS Notice 88-19.
Requirements for Qualification. The Code defines a REIT as a corporation,
trust or association (1) which is managed by one or more trustees or directors;
(2) the beneficial ownership of which is evidenced by transferable shares, or by
transferable certificates of beneficial interest; (3) which would be taxable as
a domestic corporation, but for Sections 856 through 859 of the Code; (4) which
is neither a financial institution nor an insurance company subject to certain
provisions of the Code; (5) the beneficial ownership of which is held by 100 or
more persons; (6) during the last half of each taxable year not more than 50% in
value of the outstanding stock of which is owned, directly or constructively, by
five or fewer individuals (as defined in the Code to include certain entities);
and (7) which meets certain other tests, described below, regarding the nature
of its income and assets. The Code provides that conditions (1) to (4),
inclusive, must be met during the entire taxable year and that condition (5)
must be met during at least 335 days of a taxable year of 12 months, or during a
proportionate part of a taxable year of less than 12 months. Conditions (5) and
(6) do not apply until after the first taxable year for which an election is
made to be taxed as a REIT.
The Company has previously issued sufficient shares to allow it to satisfy
conditions (5) and (6). In addition, the Company's Articles of Incorporation
provide for restrictions regarding transfer of shares, which restrictions are
intended to assist the Company in continuing to satisfy the share ownership
requirements described in (5) and (6) above.
Income Tests. In order to maintain qualification as a REIT, the Company
annually must satisfy three gross income requirements. First, at least 75% of
the Company's gross income (excluding gross income from prohibited transactions)
for each taxable year must be derived directly or indirectly from investments
relating to real property or mortgages on real property (including "rents from
real property" and, in certain circumstances, interest) or from certain types of
temporary investments. Second, at least 95% of the Company's gross income
(excluding gross income from prohibited transactions) for each taxable year must
be derived from such real property investments, dividends, interest and gain
from the sale or disposition of stock or securities (or from any combination of
the foregoing). Third, short-term gain from the sale or other disposition of
stock or securities, gain from prohibited transactions and gain on the sale or
other disposition of real property held for less than four years (apart from
involuntary conversions and sales of foreclosure property) must represent less
than 30% of the Company's gross income (including gross income from prohibited
transactions) for each taxable year.
Rents received by the Company will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions are met. First, the amount of rent must not be based in whole
or in part on the income or profits of any person. However, an amount received
or accrued generally will not be excluded from the term "rents from real
property" solely by reason of being based on a fixed percentage or percentages
of receipts or sales. (If a REIT receives or accrues rent from a tenant that
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<PAGE> 48
derives substantially all of its income with respect to the property from the
subleasing of substantially all such property, and a portion of the tenant's
sublease income would be treated as qualified rents if it were received by the
REIT, then the amounts received or accrued by the REIT from the tenant will be
treated as qualified rents to the same extent that the amounts so received or
accrued are attributable to qualified rents received by the tenant.) Second, the
Code provides that rents received from a tenant will not qualify as "rents from
real property" in satisfying the gross income tests if the REIT, or an owner of
10% or more of the REIT, directly or constructively owns 10% or more of such
tenant (a "Related Party Tenant"). For purposes of this test, the holdings of
certain family members are aggregated. Third, if rent attributable to personal
property, leased in connection with a lease of real property, is greater than
15% of the total rent received under the lease, then the portion of rent
attributable to such personal property will not qualify as "rents from real
property." Finally, for rents received to qualify as "rents from real property,"
the REIT generally must not operate or manage the property or furnish or render
services to the tenants of such property, other than through an independent
contractor from whom the REIT derives no revenue. The REIT may, however,
directly perform certain services that are "usually or customarily rendered" in
connection with the rental of space for occupancy only and are not otherwise
considered "rendered to the occupant" of the property. The Company does not and
will not (i) charge rent for any property that is based in whole or in part on
the income or profits of any person (except by reason of being based on a
percentage of receipts or sales, as described above), (ii) rent any property to
a Related Party Tenant, (iii) derive rental income attributable to personal
property (other than personal property leased in connection with the lease of
real property, the amount of which is less than 15% of the total rent received
under the lease), or (iv) perform services considered to be rendered to the
occupant of the property, other than through an independent contractor from whom
the Company derives no revenue.
The term "interest" generally does not include any amount received or
accrued (directly or indirectly) if the determination of such amount depends in
whole or in part on the income or profits of any person. However, an amount
received or accrued generally will not be excluded from the term "interest"
solely by reason of being based on a fixed percentage or percentages of receipts
or sales.
Management, leasing and similar fees and other income from services do not
count toward satisfaction of either the 95% or the 75% gross income tests. The
Company receives management fee income from its property management business. In
the past, such management fee and other nonqualifying income constituted less
than 5% of the Company's gross income in any year, and the Company anticipates
that such nonqualifying income will continue to be less than 5% of the Company's
gross revenue in any year. The Company will continue to monitor and manage the
amount of such nonqualifying income in order to comply with the 95% and 75%
gross income tests.
If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. These relief
provisions will be generally available if the Company's failure to meet such
test was due to reasonable cause and not due to willful neglect, the Company
attaches a schedule of the sources of its income to its return, and any
incorrect information on the schedule was not due to fraud with intent to evade
tax. It is not possible, however, to state whether in all circumstances the
Company would be entitled to the benefit of these relief provisions. As
discussed above in "Federal Income Tax Considerations -- Taxation of the
Company -- General," even if these relief provisions apply, a tax would be
imposed with respect to the excess net income.
Asset Tests. The Company, at the close of each quarter of its taxable
year, must also satisfy three tests relating to the nature of its assets. First,
at least 75% of the value of the Company's total assets must be represented by
real estate assets (including (i) its allocable shares of real estate assets
held by partnerships in which the Company owns an interest and (ii) stock or
debt instruments held for not more than one year purchased with the proceeds of
a stock offering or long-term (at least five years) debt offering of the
Company), cash, cash items and government securities. Second, not more than 25%
of the Company's total assets may be represented by securities other than those
in the 75% asset class. Third, of the investments included in the 25% asset
class, the value of any one issuer's securities owned by the Company may not
exceed 5% of the value of the Company's total assets and the Company may not own
more than 10% of any one issuer's outstanding voting securities. The Company's
investment in K&F Development Company is not a
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qualifying asset for purposes of the 75% test. The Company expects, however,
that such investment will continue to represent less than 5% of the Company's
total assets and, together with any other non-qualifying assets, will continue
to represent less than 25% of the Company's total assets.
Annual Distribution Requirements. The Company, in order to qualify as a
REIT, is required to distribute dividends (other than capital gain dividends) to
its stockholders in an amount at least equal to (A) the sum of (i) 95% of the
Company's "real estate investment trust taxable income" (computed without regard
to the dividends paid deduction and the Company's net capital gain) and (ii) 95%
of the net income (after tax), if any, from foreclosure property, minus (B) the
sum of certain items of noncash income. In addition, if the Company disposes of
any Built-In Gain Asset during its Recognition Period, the Company will be
required, pursuant to IRS regulations which have not yet been promulgated, to
distribute at least 95% of the Built-In Gain (after tax), if any, recognized on
the disposition of such asset. Such distributions must be paid in the taxable
year to which they relate, or in the following taxable year if declared before
the Company timely files its tax return for such year and if paid on or before
the first regular dividend payment after such declaration. To the extent that
the Company does not distribute all of its net capital gain or distributes at
least 95%, but less than 100%, of its "real estate investment trust taxable
income," as adjusted, it will be subject to tax thereon at regular ordinary and
capital gain corporate tax rates. Furthermore, if the Company should fail to
distribute during each calendar year at least the sum of (i) 85% of its Company
ordinary income for such year, (ii) 95% of its real estate investment trust
capital gain income for such year, and (iii) any undistributed taxable income
from prior periods, the Company would be subject to a 4% excise tax on the
excess of such required distribution over the amounts actually distributed. The
Company intends to make timely distributions sufficient to satisfy this annual
distribution requirement.
It is possible that the Company, from time to time, may not have sufficient
cash or other liquid assets to meet the 95% distribution requirement due to
timing differences between (i) the actual receipt of income and actual payment
of deductible expenses and (ii) the inclusion of such income and deduction of
such expenses in arriving at taxable income of the Company. In the event that
such timing differences occur, in order to meet the 95% distribution
requirement, the Company may find it necessary to arrange for short-term, or
possibly long-term, borrowings or to pay dividends in the form of taxable stock
dividends.
Under certain circumstances, the Company may be able to rectify a failure
to meet the distribution requirement for a year by paying "deficiency dividends"
to stockholders in a later year, which may be included in the Company's
deduction for dividends paid for the earlier year. Thus, the Company may be able
to avoid being taxed on amounts distributed as deficiency dividends; however,
the Company will be required to pay interest based upon the amount of any
deduction taken for deficiency dividends.
Because not all shares of Series A Common Stock have been converted into
shares of Common Stock and the 5% differential distribution (required by the
Company's charter) is made in respect of the Common Stock, the annual
distribution requirement will not be satisfied if the Series A Common Stock and
the Common Stock are treated as the same class of stock for Federal income tax
purposes. The Common Stock is classified as a separate class under Maryland
corporation law. Accordingly, the existence of the dividend differential does
not preclude the Company from satisfying the annual distribution requirement.
Failure to Qualify. If the Company fails to qualify for taxation as a REIT
in any taxable year, and the relief provisions do not apply, the Company will be
subject to tax (including any applicable alternative minimum tax) on its taxable
income at regular corporate rates. Distributions to stockholders in any year in
which the Company fails to qualify will not be deductible by the Company nor
will they be required to be made. In such event, to the extent of current and
accumulated earnings and profits, all distributions to stockholders will be
taxable as ordinary income, and, subject to certain limitations of the Code,
corporate distributees maybe eligible for the dividends received deduction.
Unless entitled to relief under specific statutory provisions, the Company will
also be disqualified from taxation as a REIT for the four taxable years
following the year during which qualification was lost. It is not possible to
state whether in all circumstances the Company would be entitled to such
statutory relief. Failure to qualify for even one year could result in the
Company's incurring substantial indebtedness (to the extent that borrowings are
feasible) or liquidating substantial investments in order to pay the resulting
taxes.
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TAXATION OF STOCKHOLDERS
Taxation of Taxable Domestic Stockholders. As long as the Company
qualifies as a REIT, distributions made to the Company's taxable domestic
stockholders out of current or accumulated earnings and profits (and not
designated as capital gain dividends) will be taken into account by them as
ordinary income and will not be eligible for the dividends received deduction
for corporations. Distributions that are designated as capital gain dividends
will be taxed as long-term capital gains (to the extent they do not exceed the
Company's actual net capital gain for the taxable year) without regard to the
period for which the stockholder has held its stock. However, corporate
stockholders may be required to treat up to 20% of certain capital gain
dividends as ordinary income. Distributions in excess of current and accumulated
earnings and profits will not be taxable to a stockholder to the extent that
they do not exceed the adjusted basis of the stockholder's shares, but rather
will reduce the adjusted basis of such shares. To the extent that such
distributions exceed the adjusted basis of a stockholder's shares they will be
included in income as long-term capital gain (or short-term capital gain if the
shares have been held for one year or less) assuming the shares are a capital
asset in the hands of the stockholder. In addition, any dividend declared by the
Company in October, November or December of any year payable to a stockholder of
record on a specified date in any such month shall be treated as both paid by
the Company and received by the stockholder on December 31 of such year,
provided that the dividend is actually paid by the Company during January of the
following calendar year. Stockholders may not include in their individual income
tax returns any net operating losses or capital losses of the Company.
In general, any loss upon a sale or exchange of shares by a stockholder who
has held such shares for six months or less (after applying certain holding
period rules) will be treated as a long-term capital loss to the extent of
distributions from the Company required to be treated by such stockholder as
long-term capital gain.
Taxation of Tax-Exempt Stockholders. In Revenue Ruling 66-106, 1966-1 C.B.
151, the IRS ruled that amounts distributed by a REIT to a tax-exempt employees'
pension trust did not constitute "unrelated business taxable income" ("UBTI").
Revenue rulings are interpretive in nature and subject to revocation or
modification by the IRS. However, based upon Revenue ruling 66-106 and the
analysis therein, distributions by the Company to a stockholder that is a
tax-exempt entity should also not constitute UBTI, provided that the tax-exempt
entity has not financed the acquisition of its shares with "acquisition
indebtedness" within the meaning of the Code and the shares are not otherwise
used in an unrelated trade or business of the tax-exempt entity.
Taxation of Foreign Stockholders. The rules governing United States
Federal income taxation of nonresident alien individuals, foreign corporations,
foreign partnerships and other foreign stockholders (collectively, "Non-U.S.
Stockholders") are complex, and no attempt will be made herein to provide more
than a summary of such rules. Prospective Non-U.S. Stockholders should consult
with their own tax advisors to determine the impact of federal, state and local
income tax laws with regard to an investment in shares, including any reporting
requirements.
Distributions by the Company that are not attributable to gain from sales
or exchanges by the Company of United States real property interests and not
designated by the Company as capital gain dividends will be treated as dividends
of ordinary income to the extent that they are made out of current or
accumulated earnings and profits of the Company. Such distributions, ordinarily,
will be subject to a withholding tax equal to 30% of the gross amount of the
distribution unless an applicable tax treaty reduces or eliminates that tax.
However, if income from the investment in the shares is treated as effectively
connected with the conduct by the Non-U.S. Stockholder of a United States trade
or business, the Non-U.S. Stockholder generally will be subject to a tax at
graduated rates in the same manner as U.S. Stockholders are taxed with respect
to such dividends (and may also be subject to the 30% branch profits tax in the
case of a stockholder that is a foreign corporation). The Company withholds
United States income tax at the rate of 30% on the gross amount of any such
dividends made to a Non-U.S. Stockholder unless (i) a lower treaty rate applies
or (ii) the Non-U.S. Stockholder files an IRS Form 4224 with the Company
certifying that the investment to which the distribution relates is effectively
connected to a United States trade or business of such Non-U.S. Stockholder.
Lower treaty rates applicable to dividend income may not necessarily apply to
dividends from a REIT such as the Company, however. Distributions in excess of
current and accumulated earnings and profits of the
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Company will not be taxable to a stockholder to the extent that they do not
exceed the adjusted basis of the stockholder's shares, but rather will reduce
the adjusted basis of such shares. To the extent that such distributions exceed
the adjusted basis of a Non-U.S. Stockholder's shares, they will give rise to
tax liability if the Non-U.S. Stockholder otherwise is subject to tax on any
gain from the sale or disposition of his shares in the Company (as described
below). If it cannot be determined at the time a distribution is made whether or
not such distribution will be in excess of current and accumulated earnings and
profits, the distributions will be subject to withholding at the same rate
applicable to dividends. However, amounts thus withheld are refundable if it is
subsequently determined that such distribution was, in fact, in excess of
current and accumulated earnings and profits of the Company.
Distributions that are designated by the Company at the time of
distribution as capital gain dividends (other than those arising from the
disposition of a Untied States real property interest) generally will not be
subject to taxation, unless (i) investment in the shares is effectively
connected with the Non-U.S. Stockholder's United States trade or business, in
which case the Non-U.S. Stockholder will be subject to the same treatment as
U.S. Stockholders with respect to such gain (except that a stockholder that is a
foreign corporation may also be subject to the 30% branch profits tax), or (ii)
the Non-U.S. Stockholder is a nonresident alien individual who was present in
the United States for 183 days or more during the taxable year and has a "tax
home" in the United States, in which case the nonresident alien individual will
be subject to a 30% tax on the individual's capital gains.
For any year in which the Company qualifies as a REIT, distributions that
are attributable to gain from sales or exchanges by the Company of United States
real property interests will be taxed to a Non-U.S. Stockholder under the
provisions of the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). Under FIRPTA, these distributions are taxed to a Non-U.S.
Stockholder as if such gain were effectively connected with a United States
trade or business. Non-U.S. Stockholders would thus be taxed at the same capital
gain rates applicable to U.S. Stockholders (subject to applicable alternative
minimum tax and a special alternative minimum tax in the case of nonresident
alien individuals). Also, distributions subject to FIRPTA may be subject to a
30% branch profits tax in the hands of a foreign corporate stockholder not
entitled to treaty exemption. The Company is required by applicable IRS
regulations to withhold 34% of any distribution that could be designated by the
Company as a capital gain dividend. This amount is creditable against the Non-
U.S. Stockholder's FIRPTA tax liability.
Gain recognized by a Non-U.S. Stockholder upon a sale of shares generally
will not be taxed under FIRPTA if the Company is a "domestically-controlled
REIT," defined generally as a REIT in which at all times during a specified
testing period less than 50% in value of the stock was held directly or
indirectly by foreign persons. The Company currently is a
"domestically-controlled REIT" and anticipates continuing to be so classified,
and therefore the sale of shares should not be subject to taxation under FIRPTA.
In addition, FIRPTA does not apply to gain recognized upon a sale of shares of a
class of the Company's stock regularly traded on an established market by a
Non-U.S. Stockholder holding (during specified periods) 5% or less of such class
of stock. However, gain not subject to FIRPTA will be taxable to a Non-U.S.
Stockholder if (i) investment in the shares is effectively connected with the
Non-U.S. Stockholder's United States trade or business, in which case the
Non-U.S. Stockholder will be subject to the same treatment as U.S. Stockholders
with respect to such gain (a stockholder that is a foreign corporation may also
be subject to the 30% branch profits tax), or (ii) the Non-U.S. Stockholder is a
nonresident alien individual who was present in the United States for 183 days
or more during the taxable year and has a "tax home" in the United States, in
which case the nonresident alien individual will be subject to a 30% tax on the
individual's capital gains. If the gain on the sale of shares were to be subject
to taxation under FIRPTA, the Non-U.S. Stockholder will be subject to the same
treatment as U.S. Stockholders with respect to such gain (subject to applicable
alternative minimum tax and a special alternative minimum tax in the case of
nonresident alien individuals and, in the case of foreign corporations, subject
to the possible application of the 30% branch profits tax).
Backup Withholding. The Company will report to its domestic stockholders
and the IRS the amount of dividends paid during each calendar year, and the
amount of tax withheld, if any. Under the backup withholding rules, a
stockholder may be subject to backup withholding at the rate of 31% with respect
to dividends paid unless such holder (a) is a corporation or comes within
certain other exempt categories and,
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when required, demonstrates this fact, or (b) provides a taxpayer identification
number, certifies as to no loss of exemption from backup withholding, and
otherwise complies with applicable requirements of the backup withholding rules.
A stockholder that does not provide the Company with his correct taxpayer
identification number may also be subject to penalties imposed by the IRS. Any
amount paid as backup withholding will be creditable against the stockholder's
income tax liability. In addition, the Company may be required to withhold a
portion of capital gain distributions to any stockholders who fail to certify
their non-foreign status to the Company. See "-- Taxation of Foreign
Stockholders."
Offered Securities. Special federal income tax considerations with respect
to the Warrants, the Preferred Stock and the Debt Securities will be described
in the applicable Prospectus Supplement accompanying the issuance of such
Offered Securities.
OTHER TAX CONSEQUENCES
The Company and its stockholders may be subject to state or local taxation
in various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of the Company
and its stockholders may not conform to the Federal income tax consequences
discussed above. Consequently, prospective stockholders should consult their own
tax advisors regarding the effect of state and local tax laws on an investment
in the Company.
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PLAN OF DISTRIBUTION
The Company may sell the shares of Offered Securities to one or more
underwriters for public offering and sale by them or may sell the Offered
Securities to investors directly or through agents, which agents may be
affiliated with the Company. Direct sales to investors may be accomplished
through subscription offerings or concurrent rights offerings to the Company's
stockholders and direct placements to third parties. Any such underwriter or
agent involved in the offer and sale of the Offered Securities will be named in
the applicable Prospectus Supplement.
Sales of Offered Securities offered pursuant to any applicable Prospectus
Supplement may be effected from time to time in one or more transactions on the
New York Stock Exchange or in negotiated transactions or any combination of such
methods of sale, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at other negotiated prices.
Underwriters may offer and sell Offered Securities at a fixed price or
prices which may be changed, at prices related to the prevailing market prices
at the time of sale, or at negotiated prices. The Company also may, from time to
time, authorize underwriters acting as the Company's agents to offer and sell
the Offered Securities upon the terms and conditions as set forth in the
applicable Prospectus Supplement. In connection with the sale of Offered
Securities, underwriters may be deemed to have received compensation from the
Company in the form of underwriting discounts or commissions and may also
receive commissions from purchasers of Offered Securities for whom they may act
as agent. Underwriters may sell Offered Securities to or through dealers, and
such dealers may receive compensation in the form of discounts, concessions or
commissions from the underwriters and/or commissions from the purchasers for
whom they may act as agent.
Unless otherwise specified in the related Prospectus Supplement, each
series of Securities will be a new issue with no established trading market,
other than the Common Stock which is listed on the NYSE. Any shares of Common
Stock sold pursuant to a Prospectus Supplement will be listed on the NYSE,
subject to official notice of issuance. The Company may elect to list any series
of Debt Securities or Preferred Stock on an exchange, but is not obligated to do
so. It is possible that one or more underwriters may make a market in a series
of Offered Securities, but will not be obligated to do so and may discontinue
any market making at any time without notice. Therefore, no assurance can be
given as to the liquidity of, or the trading market for, the Offered Securities.
Any underwriting compensation paid by the Company to underwriters or agents
in connection with the offering of Offered Securities, and any discounts,
concessions or commissions allowed by underwriters to participating dealers,
will be set forth in the applicable Prospectus Supplement. Underwriters, dealers
and agents participating in the distribution of the Offered Securities may be
deemed to be underwriters, and any discounts and commissions received by them
and any profit realized by them on resale of the Offered Securities may be
deemed to be underwriting discounts and commissions under the Securities Act.
Underwriters, dealers and agents may be entitled, under agreements entered into
with the Company, to indemnification against and contribution toward certain
civil liabilities, including liabilities under the Securities Act. Any such
indemnification agreements will be described in the applicable Prospectus
Supplement.
If so indicated in the applicable Prospectus Supplement, the Company may
authorize dealers acting as the Company's agents to solicit offers by certain
institutions to purchase Offered Securities from the Company at the public
offering price set forth in such Prospectus Supplement pursuant to Delayed
Delivery Contracts ("Contracts") providing for payment and delivery on the date
or dates stated in such Prospectus Supplement. Each Contract will be for an
amount not less than, and the aggregate principal amount of Offered Securities
sold pursuant to Contracts shall be not less nor more than, the respective
amounts stated in the applicable Prospectus Supplement. Institutions with whom
Contracts, when authorized, may be made include commercial and savings banks,
insurance companies, pension funds, investment companies, educational and
charitable institutions, and other institutions but will in all cases be subject
to the approval of the Company. Contracts will not be subject to any conditions
except (i) the purchase by an institution of the Offered Securities covered by
its Contracts shall not at the time of delivery be prohibited under the laws of
any jurisdiction in the United States to which such institution is subject, and
(ii) if the Offered Securities are being sold to underwriters, the
27
<PAGE> 54
Company shall have sold to such underwriters the total principal amount of the
Offered Securities less the principal amount thereof covered by Contracts.
EXPERTS
The financial statements and related financial statement schedules included
in the Company's Annual Reports on Form 10-K and Form 10-K/A for the year ended
December 31, 1994, and incorporated by reference herein, have been audited by
Ernst & Young LLP successor to Kenneth Leventhal & Company, independent public
accountants, to the extent and for the periods indicated in their reports and
have been incorporated herein in reliance on such reports given on their
authority as experts in accounting and auditing.
Any financial statements and schedules hereafter incorporated by reference
in the Registration Statement of which this prospectus is a part that have been
audited and are the subject of a report by independent accountants will be
incorporated herein by reference in reliance upon such reports given on the
authority of such firms as experts in accounting and auditing to the extent
covered by consents filed with the Commission.
LEGAL MATTERS
The validity of the Offered Securities will be passed upon for the Company
by Morrison & Foerster, Palo Alto, California.
28
<PAGE> 55
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS DO NOT CONSTITUTE AN OFFER
TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND
ACCOMPANYING PROSPECTUS NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Supplement Summary....... S-3
Business and Properties............. S-7
Use of Proceeds..................... S-12
Capitalization...................... S-13
Selected Financial Data............. S-14
Risk Factors........................ S-16
Description of the Notes............ S-18
Underwriting........................ S-25
Legal Matters....................... S-26
Experts............................. S-26
PROSPECTUS
Available Information............... 2
Incorporation of Certain Documents
by Reference...................... 2
The Company......................... 3
Tax Status of the Company........... 3
Use of Proceeds..................... 3
Earnings to Fixed Charges Ratios.... 3
Description of Debt Securities...... 4
Description of Stock................ 14
Description of Warrants............. 19
Federal Income Tax Considerations... 20
Plan of Distribution................ 27
Experts............................. 28
Legal Matters....................... 28
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- -------------------------------------------
</TABLE>
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$55,000,000
THE PRICE REIT, INC.
% SENIOR NOTES DUE 2006
-------------------------
PROSPECTUS
-------------------------
MERRILL LYNCH & CO.
J.P. MORGAN & CO.
, 1996
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